Market wrap: Shares are set to open more than 2% higher after the promise of record low interest rates in the US until 2013 fuelled a wild final-hour recovery on Wall Street.
The September SPI futures contract ended the night session 114 points or 2.8% stronger at 4115 as the Dow staged a 600-point turn-around.
US shares briefly gave up their gains following the release of the monthly Federal Open Market Committee statement, which did not include detailed plans to stimulate the flagging economy. However, the benchmark indexes flew higher in the final hour of trade as traders welcomed a pledge to maintain the federal funds rate at current levels until "at least" mid-2013 and a promise that the Fed will use the tools it has to bolster the economy.
The Dow closed 430 points or 3.98% higher after earlier falling more than 200 points. The S&P 500 staged its biggest rally in more than two years, rising 4.74%, and the Nasdaq put on 5.29%.
The Fed statement was the first time the central bank has put a timeline on its plans for the funds rate, which it has held at a range of zero to 0.25% since 2008. The statement said the economic outlook for the US had dimmed and the Fed stood ready to employ the full range of policy tools at its disposal.
"The Fed is clearly setting up a situation that could offer them the potential to do something significant, if necessary," the chief investment strategist at the private-banking unit of KeyCorp in the US told Bloomberg. "People are starting to realise that what we?ve had in the market was an over-reaction."
Financial shares led the overnight recovery, topping the S&P 500's ten industry groups. Mining stocks also enjoyed huge rebounds, with BHP jumping 10.25%, Rio Tinto 14.1% and Alumina 13.3%.
A slump in the US dollar in response to the Fed's interest rate outlook helped boost commodity prices and gold. Gold set a new record to recently be ahead more than 5% for the week. Gold for December delivery added $30 or 1.7% at US$1,743.20 an ounce. September silver declined $1.73 or 4.4% to US$37.64 an ounce.
Oil plunged to a 10-month low below US$76 a barrel in Asian trade yesterday before staging an overnight recovery. Oil for September delivery was recently up 74 cents or 0.9% at US$82.05 a barrel.
Industrial metals clawed back some of their recent losses after a week of panic selling. In London, aluminium rallied 1.1%, lead 2.65%, nickel 0.1%, tin 1.6% and zinc 1.1%. Copper eased 0.3% in London but jumped 2.2% in the US.
Most of the major European markets broke seven-session losing streaks as Wall Street turned higher. Britain's FTSE added 1.89%, Germany's DAX lost 0.1% and France's CAC gained 1.63%.
TRADING THEMES TODAY
RELIEF RALLY: Phew! For a while overnight it looked like the Fed had misjudged the market and we were in for another pounding today. Then the short-covering started. The result was the best session for the S&P 500 in two years and that is obviously a green light for the recovery that began here yesterday to continue today. Anyone who bought yesterday and held overnight will likely be in clover. The rest of us will have to figure out which shares still offer decent buying after some hefty gaps higher. Financials were the pick in the US and our miners enjoyed double-digit gains. Gold carried on regardless.
ECONOMIC NEWS: Consumer sentiment figures are due at 10.30 am AEST. Chinese trade balance data are "tentatively" scheduled for release today, time unknown. A relatively light night ahead in the US includes the Federal budget balance, weekly crude oil inventories and monthly wholesale inventories.
