* Fed's growth warning hits European, US stocks
* Emerging markets welcome lack of change
* 2016 "liftoff" now possible
By Jamie McGeever
LONDON, June 18 (Reuters) - European stocks fell on Friday
and bonds rose, pushing yields sharply lower, after the U.S.
Federal Reserve cited weakening global growth and the recent
upsurge in financial market volatility as its reasons for not
raising interest rates.
Stocks and currencies in emerging markets, however, which
are more vulnerable to higher U.S. interest rates, welcomed the
Fed's decision on Thursday to postpone "lift off" for at least
another month, and rose across the board.
The FTSEuroFirst index of leading 300 shares fell 0.8
percent in early trade to 1,413 points .FTEU3 , Germany's DAX
fell 1 percent to 10,129 points .GDAXI , and France's CAC 40
was down 0.9 percent at 4,615 points .FCHI .
Britain's FTSE 100 index .FTSE also followed Wall Street's
overnight lead, and was down 0.3 percent at 6,170 points. U.S.
futures pointed to a steady open later on Friday.
European government bond yields tumbled, tracking the 2-year
U.S. Treasury yield's biggest fall since Treasuries were first
included in the Fed's quantitative easing bond-buying stimulus
programme in March 2009.
The 10-year German Bund yield was down 10 basis points in
early trading EU10YT=RR , on course for the biggest one-day
fall since early July and the third biggest this year.
A growing number of economists, including those at Morgan
Stanley and Barclays (LONDON:BARC), are now wondering whether the Fed will
raise rates at all this year, given its concerns over growth and
market volatility, as well as the strength of the dollar.
"Now it's a waiting game again and every upcoming meeting is
on the table so long as data and conditions can justify a move.
However, there is no guarantee that the conditions will be
satisfactory ahead of the end of 2015," said Lee Ferridge at
State Street.
Fed Chair Janet Yellen said the global outlook has appeared
to become less certain, adding that recent falls in U.S. stock
prices and a rise in the value of the dollar already were
tightening U.S. financial market conditions. ID:nL1N11N244
The Fed's fresh economic projections showed 13 of 17
policymakers still foresee at least one rate hike in 2015, down
only slightly from 15 at the last forecast made in June. But it
also trimmed its forecasts for 2016 and 2017 economic growth.
RE-EMERGING MARKETS
Earlier in Asia, MSCI's broadest index of Asia-Pacific
shares outside Japan .MIAPJ0000PUS rose 1 percent to a
four-week high. It was the index's third consecutive daily
increase, something not seen since early July.
Yellen explicitly noted the central bank was focusing on the
slowdown in China and emerging markets, saying one key issue is
whether there might be a risk of a more abrupt slowdown in
China.
A sudden devaluation of the yuan by the People's Bank of
China's last month surprised global markets and stoked worries
that its economy may be in worse shape than previously thought.
A Barclays survey of more than 700 global investors
published this week showed that most believed Chinese growth
figures are overstated, with more than half of those saying by
as much as two full percentage points.
"Yellen made clear that pending (Fed) meetings remain 'live'
but the repeated references to 'international developments' made
clear that the Fed is likely to remain cautious," RBS (LONDON:RBS) rates
strategists said in a note to clients on Friday.
Emerging market equities rose to one-month highs on Friday,
with MSCI's broadest emerging market index .MSCIEF up 0.6
percent and on track for the biggest weekly rise since early
April, with 3.7 percent gains.
However, Japan's Nikkei average .N225 , in line with other
developed equity markets, ended three days of gains to close 2
percent lower.
In currencies, the dollar was still on the defensive, having
fallen more than 1 percent immediately after the Fed's decision.
The dollar index against a basket of major currencies .DXY was
down a quarter of one percent to a three-week low of 94.301 on
Friday.
The euro was steady at $1.1435 EUR= in early European
trade on Friday, near a three-week high of $1.1441 hit on
Thursday. The dollar fell 0.5 percent against the yen to 119.40
yen JPY= .
U.S. debt yields remained under downward pressure, with the
two-year note's yield slipping further to 0.667 percent, only a
day after it hit a 4 1/2-year high of 0.819 percent.
In commodities, U.S. crude futures CLc1 were down 0.7
percent at $46.54 per barrel, but still up more than 4 percent
on the week. Brent was steady at $49.15 a barrel LCOc1 .
Gold took heart from the dollar's travails XAU= and hit a
two-week high of $1,136 per ounce. It last stood at $1,131.80.