Asian shares rally, dollar sags on slow-motion Fed

By Wayne Cole

SYDNEY (Reuters) - Asian shares look set to rise for a sixth straight session on Thursday after the Federal Reserve left U.S. rates unchanged and plotted a lower trajectory for future hikes, slugging the dollar and boosting commodity prices.

Traders expected stocks to at least match the 1.1 percent gain enjoyed by the S&P 500 (.SPX). MSCI's broadest index of Asia-Pacific shares outside Japan was seen testing its recent one-year peak.

While Tokyo was on holiday on Thursday, stocks (.N225) were boosted on Wednesday by the Bank of Japan's shift to targeting a positive yield curve, a move that was considered bullish for banks, insurers and pension funds.

The U.S. Fed did highlight the risk of a hike in December, but the forward guidance on rates - known as the dot points - left investors feeling any tightening would be glacial at best.

Market pricing for a December move rose only a fraction to 59.3 percent , from 59.2 percent, according to CME Group's FedWatch program.

Richard Franulovich, an analyst at Westpac, noted that back in June the median dot showed five hikes to end-2017. Now it was down to just three. The estimate of the long run neutral rate had also fallen 12.5 basis points to 2.875 percent.

"We do not feel that the dollar has the wherewithal to make a more concerted run higher in the next few weeks," he added. "The FOMC is unlikely to deliver anything more than a very 'dovish' December hike."

The dollar was down at 100.40 yen (JPY=), having lost 1.3 percent on Wednesday to touch a 3-1/2 week low of 100.30. The euro had popped up to $1.1190 (EUR=), while the dollar index stood at 95.499 (.DXY) after easing 0.5 percent from a more than six-week high of 96.333.

CENTRAL BANKS STILL TRYING

The yen had gained broadly after the BOJ's shift to yield curve control - already abbreviated by the market to "YCC" - left some unimpressed.

"Fundamentally, it did not amount to an easing of monetary policy, but merely offers policy tweaks at the margin and a strengthening of forward guidance," said Frederic Neumann, co-head of economic research at HSBC.

"The BOJ now essentially promises to purchase JGBs for even longer, until inflation exceeds, and not merely meets, its 2 percent inflation target."

Another central bank struggling with too-low inflation is the Reserve Bank of New Zealand and it renewed a pledge to lower rates again on Thursday even as much of the domestic economy is growing briskly.

The RBNZ's blunt statement that further easing would be needed knocked the local dollar down half a U.S. cent to $0.7340 (NZD=), but the market has found it hard to sell a currency that still offers an overnight interest rate of 2 percent.

In commodity markets, gold traded at $1,332.36 an ounce (XAU=), having climbed 1.6 percent as the U.S. dollar declined.

Oil prices had climbed as much as 3 percent on Wednesday after a third surprise weekly drop in U.S. crude stockpiles boosted the demand outlook in the world's largest oil consumer.

Another supportive factor was an oil workers' strike in Norway, which threatened to cut North Sea crude output.

U.S. crude (WTI) futures (CLc1) were up another 29 cents early Thursday at $45.63 a barrel. Brent crude futures (LCOc1) had finished $1.17 higher at $47.05 per barrel.

(Reporting by Wayne Cole; Editing by Eric Meijer)