Developed, emerging markets diverge as Fed keeps rates steady

Developed market stocks fell on Sept. 18 and bonds rose, pushing yields sharply lower, after the U.S. Federal Reserve cited weakening global growth and the recent upsurge in financial market volatility as its reasons for not raising interest rates.

Stocks and currencies in emerging markets, however, which are more vulnerable to higher U.S. interest rates, welcomed the Fed's decision on Sept. 17 to postpone "lift off" for at least another month, and rose across the board.

The FTSEuroFirst index of leading 300 shares slid 2 percent to 1,396 points, its biggest fall in two weeks.

Germany's DAX fell 2.6 percent to 9,961 points and France's CAC 40 was down 2.3 percent at 4,546 points.

Britain's FTSE 100 index also followed Wall Street's overnight lead, and was down 1 percent at 6,121 points.

U.S. futures predicted a fall of almost 1 percent at the open later on Sept. 18.

European government bond yields tumbled, tracking the 2-year U.S. Treasury yield's biggest fall since Treasuries were first included in the Fed's quantitative easing bond-buying stimulus program in March 2009.

The 10-year German Bund yield was down 12 basis points, on course for the biggest one-day fall since early July and the second biggest this year.

A growing number of economists, including those at Morgan Stanley and Barclays, are now wondering whether the Fed will raise rates at all this year, given its concerns over growth and market volatility, as well as the strength of the dollar.

"The Fed's rather downbeat outlook came as an unwelcome surprise, and it's likely to take a while for investors to figure out whether the Fed is seeing something that the rest of us aren't," said Michael Hewson, chief strategist at CMC...