Markets Live: Fed unleashes the bulls 11:35am: In the months leading up to the highly anticipated "taper" decision there were fears a reduction in artificial global liquidity could cause the interest rates on long-dated bonds and inflation to spike, but so far the local bond market is responding calmly. There has been little impact at present on Australian government bonds, neither inflation-linked nor conventional bonds, Ardea Investment Management portfolio manager Ben Alexander says: We knew before the announcement that the FOMC are hoping the US economic recovery will be able to sustain a reduction and eventual reversal of its quantitative easing program, and that remains the case. What is much more important to see is their response to any poor news for the US economy, and what else they might be prepared to do should the recovery falter. Nomura interest rates strategist Martin Whetton notes: "Australian rate markets have had very little reaction to the FOMC statement and subsequent press conference. The curve has flattened by a few basis points, which appears to be the biggest move. The Australian dollar, which has been very weak over the last few weeks, saw a decent bounce after the announcement and is trading just under US89 cents. 11:18am: NAB chairman Michael Chaney has been urged to fight the Coalition's $5.5-billion-a-year paid parental leave on behalf of shareholders. At the bank's annual meeting, Chaney was told by one shareholder he ought to take a "harder line" on a policy that was merely a "thought bubble" of Prime Minister Tony Abbott. Chaney earlier said he had protested against the policy - which will be partly funded by a levy on big companies - but Abbott had taken the policy to the election and was therefore entitled to introduce it. 11:05am: The Australian dollar has been weak in trade against the US dollar. But it's also declined against the euro, pound and the New Zealand dollar. It was trading at four-year lows against the pound this morning at 54.02 pence, at three-year lows against the euro at 64.48 euro cents, and at five-year lows against the New Zealand dollar at $NZ107.7¢. But at the chart attached shows, the Japanese yen weakened against currencies such as the US and Australian dollars following the US Federal Reserve's decision this morning to start tapering its bond purchases. The US dollar was at five-year highs against the yen, rising by 1.4 per cent to 104.05 yen. The USD against some major currencies before and after the taper decision. 10:57am: Over at the AFR, Philip Baker says that despite the initial enthusiasm by the markets over the Fed's taper decision, the real test still lies ahead: It was a well-orchestrated move in the end and to have stocks rising as the taper begins is a big tick for the Fed as it shows it has massaged everyone's expectations. At this time, it appears that investors are looking at earnings in the US and thinking the recovery will roll on. That's vital for confidence and it looks like the first few steps of Wall Street standing on its own two feet have been solid ones. But the real test will come in the months ahead. If the US economy further improves, then investors should expect more tapering. And that's where it might get tricky. Investors should brace themselves for more volatile sessions than what they will get today. It is that essentially optimistic take - that the Fed is cutting its quantitative easing stimulus because it sees that the economy is strong enough to handle it - that has prevailed today, and the Fed has played a part in delivering it, by upgrading its own forecasts for the pace of the recovery, and the fall in unemployment next year. Here's the full article ($) 10:53am: After disappointing investors in September, maybe the Fed was right to wait until now with its taper, Malcolm Maiden comments: It gave the market a bit longer to get used to the idea that the taper is going to be withdrawn until it is gone, and price that in. It also gave the US economy a bit longer to show that it is indeed recovering. It is that essentially optimistic take - that the Fed is cutting its quantitative easing stimulus because it sees that the economy is strong enough to handle it - that has prevailed today, and the Fed has played a part in delievering it, by upgrading its own forecasts for the pace of the recovery, and the fall in unemployment next year. After being the market bogeyman for the entire year the actual arrival of the taper has turned out to be the best Christmas present investors could ask for. 10:45am: There have been some calls from readers for another poll to tip where the ASX will end the day. We figure that's too soon and it's more interesting to gauge where you reckon the market will be at the end of the year - are we seeing the beginning of the long awaited Santa rally? Poll: The local market is off to a good start but will it turn into a rally? Where do you expect the ASX200 to end the year? It's a real rally: above 5200 points No real momentum: between 5100 and 5200 Enthusiasm will wane: between 5000 and 5100 Last hurrah before the sell-off: below 5000 Total votes: 225. 10:28am: The market is being led up by strong gains in the big miners (both BHP and Rio are up around 1.7 per cent) and the big banks, which have added all around 1 per cent. Among the top 200, Caltex has jumped more than 6 per cent on the back of its profit update. 10:23am: Worley Parsons has been hit with legal action following its recent profit downgrade, with a claim it failed to comply with "continuous disclosure" requirements. In late November, the company flagged a sharp profit deterioration only a matter of weeks after it had signalled higher profits for the year ahead. The company slashed its underlying year to June underlying net profit to a forecast $260-300 million. This is well short of the earlier guidance of $322 million. Worley Parsons denied there was "a proper basis for the alleged claim" and said it will "vigorously defend" itself from the action, which has been taken by Melbourne City Investments Pty Ltd. 10:13am: The sharemarket has opened higher, boosted by a rally on Wall Street that took the S&P500 and the Dow Jones to new record peaks after the Fed flagged low rates for longer. The benchmark S&P/ASX200 jumped 25.7 points, or 0.5 per cent, to 5121.8, while the broader All Ords gained 24.8 points, or 0.5 per cent, to 5124.1. Among the sectors, materials are rallying 1.2 per cent, financials are up 0.5 per cent and industrials have gained 0.4 per cent. 10:06am: Australia's sole listed oil refiner and marketer, Caltex Australia, has flagged divergent profit movements, reflecting the impact of the stronger US dollar in undermining refiner margins along with supply disruptions. 10:00am: New Zealand's economy expanded faster than expected in the third quarter as the country's dairy sector recovered from drought at the start of the year, driving increased activity. Gross domestic product (GDP) grew 1.4 per cent to a seasonally adjusted $NZ37.99 billion in the three months ended September 30, from a revised pace of 0.3 per cent growth in the June quarter, according to Statistics New Zealand. That beat the 1.1 per cent expansion predicted by a economists and the Reserve Bank's own forecast. Annual growth was 2.6 per cent, and GDP was up 3.5 per cent from the same quarter a year earlier. Agriculture, forestry and fishing grew 14 per cent in the quarter, after dairy recovered from two quarters of contraction. Dairy product manufacturing also helped drive a 1.5 per cent expansion in broader manufacturing activity. ""Dairy farming has really bounced back from the drought this year,"" said acting national accounts manager Steffi Schuster. ""The increase in agriculture is the largest in more than 25 years, as good weather boosted production well above the weak June quarter."" 9:59am: In local news, National Australia Bank chairman Michael Chaney says economic conditions are likely to remain subdued in 2014 and beyond, with unemployment forecast to rise. While the bank today said it had seen ""tentative"" signs of improvement in confidence, Chaney said the country faced a period of slower growth, underlining the need for economic reform. ""It seems clear that Australia is faced with, at best, some years of modest economic growth and rising unemployment,"" Chaney said at the bank's annual general meeting in Melbourne. That is the challenge facing governments and all participants in the economy."" 9:40am: The Federal Reserve's decision to reduce asset purchases today was nothing more than a symbolic move, but the symbolism should not be lost on investors because the central bank has officially began the process of unwinding stimulus, says BK Asset Management's Kathy Lien. Lien's top 10 take-aways from this morning's Fed decision and the Bernanke press conference: Janet Yellen voted to taper Taper nothing more than symbolic - $US10B split between Treasuries and MBS Fed changes forward guidance - Low rates now appropriate "well past the time that the unemployment rate drops below 6.5%" Bernanke believes FOMC will taper QE probably at each meeting, $US10B each time with end of QE before 2014 year end Fed says tapering will be "in further measured steps at future meetings," determined "deliberately," data dependent Bernanke stresses highly accommodative stance, emphasises that purchases will go on at rapid rate even after taper Decision was NOT unanimous - Rosengren voted to keep asset purchases unchanged Majority of Fed officials see first rate hike in 2015 Low inflation is a problem - "more than a bit of a concern." Fed now sees PCE at 1.4%-1.6% in 2014 Fed tightens up GDP forecasts, sees faster drop in jobless rate, 6.3%-6.6% by end of 2014 9:35am: Yields on 10-year Australian bonds rose slightly after the taper announcement. Yields closed at 4.23 per cent yesterday, but were trading higher today, with yields of 4.27 per cent. Yields rose to this year's high of 4.43 per cent on December 6. Yields on three-year Commonwealth Securities also lifted this morning. Yields closed at 2.914 per cent yesterday, but opened higher today and are trading at 2.948 per cent. Yields on 10-year US government bonds spiked to 2.90 per cent when the tapering was announced, before falling to 2.82 per cent half an hour later. They remained below the 2.99 per cent high this year, which was reached in early September ahead of the Fed meeting when the US Federal Reserve was first expected to taper. 9:32am: Gold fell about 1 per cent in choppy trade, after the US Federal Reserve lowered its inflation forecast and signalled better prospects for the economy as it announced plans to trim its bond-buying stimulus. Spot gold was down 0.8 per cent at $US1219.21 an ounce in late US trade. Its session low was $US1215.70, only $US4 above a five-month low of $US1211.44 set on December 4. Bullion initially rose after the US central bank said it "likely will be appropriate" to keep overnight rates near zero "well past the time" that the jobless rate falls below 6.5 per cent, especially if inflation expectations remain below target. The metal tumbled in late sessions as the US dollar extended its rally and the S&P 500 equities index rose nearly 2 per cent to close at a record high. There is no inflation anywhere in sight. At the end of the day, you're going to have a stronger dollar when you take the fear out of financial markets," said Frank McGhee, head precious metals dealer at Chicago commodities brokerage Alliance Financial. 9:30am: US stocks have surged to new records after the US Federal Reserve modestly scaled back its bond-buying program in a much-anticipated decision. The Dow Jones Industrial Average soared 292.71, or 1.85 per cent, to 16,167.97, while the broad-based S&P 500 jumped 29.65 points, or 1.7 per cent, to 1810.65. Both were records.The tech-rich Nasdaq Composite index rose 46.38, or 1.15 per cent, to 4070.06. The Fed said it would scale back its bond-buying program from $US85 billion to $US75 billion starting in January due to conditions ""consistent with growing underlying strength in the broader economy,"" according to a statement by the Federal Open Market Committee (FOMC). But the move to scale back the purchases was accompanied by a decision to extend the period of very-low interest rates. The move means the current near-zero rate will be in place ""well past the time"" that the unemployment rate declines below 6.5 per cent,"" said the FOMC communique. The overall thrust of the statement was ""a bit dovish,"" said Dan Greenhaus, chief global strategist at BTIG. The move to extend the period of low interest rates ""compensated"" for the taper decision, he said. ""The market is taking the statement as somewhat dovish, somewhat supportive of growth and the economy, and, by extension, somewhat supportive of asset prices."" 9:26am: The Australian dollar traded violently and briefly fell to its lowest levels in more than three years as the US Federal Reserve started a wind-back of its unprecedented stimulus program, which has supported the currency. The local dollar fell to as low as 88.19 US cents just before the Fed's announcement this morning, before jumping more than a cent to 89.45 US cents and then falling below 89 US cents again. It's currently buying 88.56 US cents. "I'm not surprised to have seen traders initially mark the US dollar higher and the markets lower," Westpac's chief currency strategist Robert Rennie says of the surprise from traders at the start of the tapering and a reduction in mortgage assets buying. But Rennie says the statement was balanced by a clear indication from the central bank that it would continue to maintain a highly accommodative monetary policy as it closely monitored inflation and the unemployment rate. "One section that really grabbed me when I read the statement was the use of the words 'well past the time that the unemployment rate declines below 6.5 per cent'," Rennie says. Erratic ... the dollar reacts to the Fed's taper decision. 9:24am: Australian shares are seen rallying as Wall Street touched record highs after the US Federal Reserve announced it would begin scaling back its stimulus, but said its key interest rate would stay lower for even longer than previously promised. SPI futures up 41 points. AUD fetching 88.49 US cents, 92.10 yen, 64.62 euro cents, 53.98 pence On Wall St, S&P500 +1.7%, Dow Jones +1.9%, Nasdaq +1.2% In Europe, Eurostoxx +1.1%, FTSE100 +0.1%, CAC +1%, DAX +1.1% Spot gold falls 0.8% to $US1219.20 an ounce Brent oil rises 0.9% to $US109.39 per barrel Iron ore slips 0.7% to $US133.40 per tonne Here's the whole need2know