By Lewis Krauskopf
NEW YORK (Reuters) - The dollar sank to a five-week low on Thursday while U.S. bond yields rose as investors digested the recent U.S. interest rate increase and indications there would be no pick-up in the pace of monetary tightening.
European stock markets gained following the election victory by Dutch Prime Minister Mark Rutte, who fought off a challenge by anti-immigration, anti-European Union rival Geert Wilders.
MSCI's all-country world stock index gained 0.7 percent, and hit an all-time high.
On Wall Street, the benchmark S&P 500 index slipped after gaining sharply on Wednesday in the wake of the U.S. Federal Reserve's rate decision.
Fed Chair Janet Yellen pointed to growing faith in the economy's trajectory as the U.S. central bank raised rates for the second time in three months.
"Certainly, the Fed was dovish in their approach," said Bruce Bittles, chief investment strategist at Robert W. Baird in Sarasota, Florida. "The fact that the Fed raised rates, but not aggressively, but yet indicated that she had confidence in the economy certainly was a big help."
The Dow Jones Industrial Average fell 15.55 points, or 0.07 percent, to 20,934.55, the S&P 500 lost 3.88 points, or 0.16 percent, to 2,381.38 and the Nasdaq Composite added 0.71 points, or 0.01 percent, to 5,900.76.
Traders reversed initial reaction to the Fed decision, as financials, which sold off on Wednesday, led gains, while utilities - often used as a proxy for bonds - slumped as benchmark 10-year Treasury note yields rose.
"You see that throughout the whole marketplace, reactions to higher yields today," said Jim Paulsen, chief investment strategist at Wells Capital Management in Minneapolis.
The pan-European STOXX 600 index rose 0.7 percent and touched its highest level since December 2015, helped by the Fed's dovish tone and the Dutch election results.
Amsterdam's AEX index rose 0.6 percent and hit its highest in more than nine years.
"Some of that fear around Brexit, Trump, and then Wilders and (France's) Le Pen, may now be seeping out of the markets - you see some of that fear dissipating," said Arne Petimezas, analyst at AFS Group in Amsterdam, referring to far-right French presidential Marine Le Pen.
The dollar fell 0.5 percent against a basket of key currencies, adding to Wednesday's steep slide after the Fed's decision. It touched a five-week low.
Sterling jumped after the Bank of England kept interest rates on hold but gave a handful of hints in voting results and its minutes that it might raise them soon.
U.S. Treasury yields rose from more than one-week lows on the view that they had fallen too sharply in the prior session after the Fed maintained its outlook for only a gradual pace of interest rate increases this year.
Prices on benchmark 10-year Treasuries fell 8/32 to yield 2.531 percent, up from 2.504 percent late on Wednesday.
Oil prices slipped as support from a weaker dollar was offset by U.S. crude inventories near record high levels.
Brent crude ended the session 7 cents lower at $51.74 a barrel. U.S. light crude settled 11 cents lower at $48.75 a barrel.
(Additional reporting by Sinead Carew in New York and Jemima Kelly in London; Editing by Bernadette Baum and Nick Zieminski)