Regional financial markets had been on tenterhooks in the weeks preceding the Federal Open Market Committee announcement on Wednesday. Markets had already positioned themselves to absorb a quarter-point hike in the benchmark Federal Fund rate to five per cent, but feared it may be the first of a series of increases. Capital is usually sucked out of emerging markets and redeployed back to developed economy bond markets when US interest rates rise.

The Fed's policy switch, with a statement that "strengthening productivity has Contained inflationary pressures" indicated,however, that additional US rate raises may not be needed. Asian investors were delighted by the mild language, which had sent Wall Street blue-chips up 1.4 per cent on Wednesday with the Dow Jones Industrial Average posting a gain of 155.45 points to 10.970.80 points. Share prices in Tokyo rallied 1.9 per cent, with the key Nikkei average of 225 selected issues on the Tokyo Stock Exchange rising 331.01 points to end at 17,860.75.

"The Fed's decision is like bringing an end to a rainy season in the United States," said Masaaki Higashida, deputy head of investment information at Nomura Securities Co. Ltd. in Tokyo. "Whether this is temporary sunshine or a definite start of summer, the Japanese market can finally start moving on its own," Higashida said. Singapore share prices jumped nearly two per cent by noon, with the benchmark Straits Times index up 42.26 points to 2,210.16.

A dealer with a local brokerage said the neutral bias adopted by the Federal Open Market Committee had reassured institutionalinvestors who had been sidelined ahead of its meeting on Tuesday and Wednesday.

Malaysian share prices rose 2.5 percent at the end of morning trade with the index surging 20.28 points to 831.38. Australian and South Korean markets breached key resistance levels. Shares in Sydney closed up 1.1 per cent, with the benchmark All Ordinaries index ending up 33.2 points at 3,002.1. South Korean share prices jumped by 4.2 per cent, with the Korea Stock Exchange index closing up 36.98 points at 919.98. In the Philippines, share prices rose 2.2 per cent as investors cheered the Fed's policy shift, with the composite index gaining 56.34 points to close at 2,543.30 points.

Enrique Lozari of Abacus Securities Corp. said in Manila that investors had been heartened by the "assurance of the FOMC that they are going to maintain a neutral stance on interest rates". Indonesian share prices closed morning trade up 0.7 per cent, rolling back early gains after rising as much as 2.7 per cent. The Jakarta Stock Exchangecomposite index was up 4.667 points at 666.692 at noon. Stock markets in Hong Kong, Thailand and Taiwan were closed for public holidays and, hence, missed the rally.

The Federal Reserve had lowered rates late last year in three quarter-point instalments to shield The United States from financial upheavals overseas, especially Asia where many economies hit by the 1997 financial crisis were beginning to recover. Analysts had argued that in the light of sustained, demand-driven US growth, the Federal Reserve would have to raise rates by a similar amount this year to avert overheating.

But the FOMC on Wednesday pointed to an easing in financial strains on the US economy, as well as a "firming" in the foreign markets. It then buoyed investors with its conclusion that "the full degree of adjustment is judged no longer necessary," suggesting two further rate hikes may not be in the offing.

Euro shares zoom

European shares rose sharply on Thursday, with the Paris bourse touching record highs, aftera modest rise in US rates and a surprise decision by the Federal Reserve to move to a neutral bias.

Dealers in London said that the early rally followed a dramatic turnaround on Wall Street overnight, where the leading shares reversed sharp losses to close 1.44 per cent higher after the expected 0.25 percentage point rise in US interest rates. In London, the FT-SE 100 index of leading shares rose by 1.5 per cent, or 96.9 points, in an opening burst to 6,415.4 points.

In Frankfurt, the X-DAX index opened 0.93 per cent higher at 5,428.34 points and in Paris, the CAC 40 index rose above the 4,600-point level for the first time in its history to a record 4,608.43 points, which was 1.58 per cent higher than Wednesday's close.