US, European stocks bounce back

Wall Street bulls drove the Dow Jones Industrial Average up sharply in the final hour of trade, battling back from a bout of weakness after the Federal Reserve offered a downbeat outlook on the US economy.

The Dow index of 30 blue-chip stocks rallied 430 points, or 3.98 percent, to 11,239.77. The index had been 200 points in negative territory 45 minutes before the close.

The broader S&P 500 climbed 4.74 percent, while the tech-heavy Nasdaq jumped 5.29 percent.

"Investors were treated to another wild ride in the markets today -- beginning the day on solid footing, plunging by over 300 points following the statement concluding the Federal Reserve’s monetary policy meeting, only to recover to close at the day\'s highs," Charles Schwab analysts said in a client note.

The policy-setting Federal Open Market Committee said that it expected to maintain interest rates near zero for "at least" the next two years due to economic weakness.

In the immediate aftermath of that announcement, the markets sagged on the news that no new direct stimulus was in the works.

"Just as stocks threatened to break down again, the S&P 500 was able to attract support in the 1100 zone. It then climbed aggressively into the close," said analysts at Briefing.com.

Economic growth so far this year has been "considerably slower" than expected and "downside risks to the economic outlook have increased," the policy-setting Federal Open Market Committee said in a statement after a one-day meeting in Washington.

The FOMC said that economic conditions were likely to warrant "exceptionally low" rates "at least through mid-2013."

The statement reinforced market worries that growth is sputtering in the United States, the world\'s largest economy.

Adding to the unease was an unexpected rise in Chinese inflation announced earlier Tuesday, stoking fears that Beijing will take new measures to cool prices that could slow growth in the engine of the global economy.

European shares fell as far as six percent, before bouncing back and stabilizing.

London\'s FTSE-100 index gained 1.89 percent and in Paris the CAC-40 rose 1.63 percent. In Frankfurt the DAX slipped 0.10 percent.

The Euro Stoxx 50 index added 0.32 percent.

Traders also reacted to weak British industrial output data and rioting in London, which some analysts are blaming on the government\'s austerity drive.

"As if the issues of eurozone debt, the US deficit and downgrade and stalling growth were not enough to create a mountain of angst, pictures of London ablaze and Syria in virtual civil war reminds us how close we are to severe social disruption," said David Hufton, an analyst at brokers PVM Oil Associates.

Investors fled to safety, sending gold prices to a fresh record above $1,780 an ounce before falling back to around $1,744.

The dollar weakened against the euro, yen and Swiss franc.

The euro traded at $1.4374 around 2100 GMT, up from $1.4179 at the same time Monday.

The dollar continued to fall against the Japanese currency, to 76.94 yen from 77.68 yen a day earlier.

The greenback hit a fresh all-time low against the Swiss franc, at 0.7091. It traded at 0.7207 francs late Tuesday, down from 0.7546 the prior day.

The rising Swiss currency almost reached parity with the euro.

The British pound stabilized against the dollar, at $1.6316.

Elsewhere in the Americas, equity markets rallied. In Canada, Toronto\'s S&P/TSX index gained 3.75 percent, erasing most of Monday\'s losses.

Mexico\'s IPC was up 2.10 percent, while Brazil\'s Bovespa surged 5.10 percent.

The US bond market jumped after the Fed announcement. Yields, already at two-year lows, fell further. The 10-year Treasury bond dropped to 2.18 percent from 2.34 percent late Monday, while that on the 30-year Treasury fell to 3.57 percent from 3.66 percent.

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