NVS Novartis AG

Global stocks surged on Thursday as investors around the world reacted positively to the Federal Reserve's decision to raise interest rates and the confidence in the U.S. economy that underpinned the move.

European stocks moved higher in early trade, following sharp gains across Asian markets and a higher close on Wall Street in response to the widely expected move by the Fed to end a seven-year experiment with near-zero interest rates.

The Stoxx Europe 600 rose 2.1% in early trade, with gains across the board, while Japan's Nikkei Stock Average gained 1.6% and the Shanghai Composite was up 1.8% on signs of a strengthening U.S. economy.

While ultralow interest rates have boosted equity markets in recent years, investors were reassured by the Fed's relatively upbeat outlook on the world's biggest economy and its plans to raise rates only gradually over the next three years.

"What we see today is basically a sigh of relief," said Johan Javeus, chief strategist at SEB Group. "Equity markets are taking comfort in the fact that this is not the path of a rapid hiking cycle, and it will be data-dependent and focused on inflation."

"The messaging around the decision is about as positive as one could expect for investors: a positive economic assessment paired with fairly dovish central bank guidance," said Eric Lascelles, chief economist at RBC Global Asset Management.

The decision also removed an immediate source of uncertainty in markets.

The yield on the rate-sensitive two-year U.S. Treasury settled above 1% for the first time in over five years on Wednesday.

Selling in bond and currency markets was relatively muted as policy members had long telegraphed their intentions to markets for a rate rise in 2015. The dollar continued to edge up early Thursday. The euro was down 0.3% against the dollar at $1.0856, while the dollar was up slightly against the yen at Y122.44.

While the Fed signaled it was moving to normalize monetary policy for the first time since the financial crisis, other central banks, including the Bank of Japan and European Central Bank, have continued with easing measures.

Investors will now consider the implications of diverging policy. The European Central Bank needs the euro to fall against the dollar to stoke inflation, and if U.S. rate rises fail to boost the dollar it could prompt the ECB to tweak its own monetary policy.

In commodities, Brent crude oil was down 1% at $37.01 a barrel. Higher interest rates usually make dollar-denominated commodity prices more expensive for foreign purchasers. A larger-than-expected increase in U.S. crude stockpiles also weighed on prices.

Gold continued to decline, falling 0.9% to $1,066, after the Fed decision. Tighter monetary policy typically make gold less attractive to investors as it competes with yield-bearing assets and the prospect of higher rates in the U.S. has driven the commodity down for much of the year.

Still, some market participants remained worried that the Fed is ending a period of near-zero rates at a time of weak global growth.

"Maybe it's the first step in a long journey to equilibrium," said Riad Younes, portfolio manager at RSQ International Equity Fund. "But the question is it a premature step?"

Plunging commodities prices and worrying signs in the junk bond market have hit equities in the past week, while signs of stress in emerging markets have raised concerns about global demand.

Emerging markets have been rattled for months about the prospect of rising U.S. rates, which strengthen the dollar and make it difficult for emerging markets to repay their debts.

"We're still living in challenging times," said Mr. Younes.

Gains for European equities were led by the auto sector, with shares in Daimler AG up 2.9%. Banks and health care stocks also rose sharply, with Novartis AG up 2.5% and HSBC Holdings PLC gaining 2%.

Write to Riva Gold at riva.gold@wsj.com

(END) Dow Jones Newswires

December 17, 2015 04:55 ET (09:55 GMT)

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