2014.03.2005:46:07UTC+00Fed decision bolsters dollar, bond yields

The US dollar held massive gains in Asia on Thursday as investors weighed with the risk the US interest rates might escalate sooner and faster than previously predicted, pushing stock and bond prices.

Short-term US bond yields leaped by the most in about three years following Federal Reserve Chair Janet Yellen said the central bank might conclude its bond-buying program this fall and start to increase interest rates in six months.

That mixed up with a slender rise in the postulated path for rates by Fed members, topped the market to carry forward the apt timing of the first hike in US rates by a couple of months. The new sense of reservation did not resolve Wall Street, where the Dow plunged 0.7% and the S&P 500, 0.61%.

The selling streamed through Asia, where Japan's Nikkei tumbled 0.7% while the Australian market missed 0.8% MSCI's widest index of Asia-Pacific shares outside Japan snipped 1.1% to a one-month line.

The Nikkei took an additional blow when data reported foreign investors sold a record ¥1.09 trillion (or $10.7 billion) of Japanese stocks last week.

The whiplash was perceived most in the short end of the Treasury market that was more sensitive to the course of the Fed funds rate. Yields on two-year notes went up 8 basis points to 43 basis points, the sharpest single-day rise since in the middle of 2011.

Yields on 10-year notes settled at 2.76% that rose 9 basis points on Wednesday. Since they serve as the benchmark for bond yields throughout the globe, the move will ripple in higher borrowing costs for many countries.

The hike in US yields in turn helped uplift the dollar and drove the euro turning a full cent to $1.3826. Versus a basket of major currencies, the dollar was at 80.004 following it added 0.8% on Wednesday.

The dollar was set at 102.40, which leaped a full yen overnight in a shift which assisted restrain the fallout on Japanese stocks. A weaker yen tends to be noticed as positive for Japanese exports and 

company profits.