LONDON – The S&P 500 eased from a record high on Thursday while the tech-heavy Nasdaq shed more than 1 percent as bond yields hit 14-month peak after the Federal Reserve pledged to tolerate inflation and keep monetary policy loose through 2023.

The blue-chip Dow hit another record high a day after the Fed projected strongest growth in nearly 40 years as the COVID-19 crisis winds down, and repeated its pledge to keep its target interest rate near zero for years to come.

At 10:04 am ET, the Dow Jones Industrial Average fell 12.72 points, or 0.04 percent, to 33,002.65, the S&P 500 lost 24.55 points, or 0.62 percent, to 3,949.57 and the Nasdaq Composite lost 205.08 points, or 1.52 percent, to 13,320.12.

Meanwhile, world share markets edged higher.

MSCI's 50-country world index near record highs after the Fed had also predicted bumper US growth this year, and a jump in German car shares hoisted Germany's DAX to a new all-time peak in Europe.

For traders worried about it all being snuffed out by rising borrowing costs, though, euro zone government bond yields were tracking upward moves in benchmark 10-year US Treasuries as they crossed 1.75 percent for the first time since January 2020.

That also revitalized the dollar, which had briefly dropped to a two-week low after the Fed had pushed back against speculation it could be starting to think about interest rate hikes.

The US central bank sees the economy growing 6.5 percent this year, which would be the largest jump since 1984. Inflation is expected to exceed its preferred level of 2 percent to 2.4 percent, although it is expected to drop back in subsequent years.

"I don't know what the Fed can do to stop a rise in yields that is based on stronger fundamentals," said BCA chief global fixed income strategist Rob Robis, pointing to the US$1.9 trillion US coronavirus relief package that will drive growth.

"The path of least resistance is still towards higher yields," he said. "The US Treasury market leads the world and every bond market responds."

It was another jam-packed day of central bank action on Thursday too.

Norway signalled a rate hike was possible this year. There were reports of the Bank of Japan loosening its tight grip on yields, the Bank of England said it was seeing recovery signs while Turkey jacked up its rates to 19 percent after another torrid month for the lira.

The dollar index, which measures the greenback against a basket of its peers, rose as much as 0.4 percent to 91.761. It had dropped to 91.300 after Wednesday's Fed meeting.

That pulled the euro back to US$1.1915 from a one-week high of US$1.19900. Sterling dribbled lower after the BoE statement, Norway's crown reached its strongest against the euro in 13 months, and the dollar gained 0.3 percent to 109.180 yen.

"The question remains whether the Fed can actually arrest the latest spike in US Treasury yields, especially given that the improvement of US fundamentals will continue," said Valentin Marinov, head of G10 FX research at Credit Agricole in London. "The renewed spike of UST yields should continue to support the dollar versus low-yielders like the euro, yen and the Swiss franc."

Inflation palpitations

Not everything went in the dollar's favour. The number of Americans filing new claims for unemployment benefits unexpectedly rose last week, data showed ahead of the Wall Street restart.

Earlier the Australian dollar rose to a two-week high of US$0.7849 after data showed the nation's economy created more than twice as many jobs as expected in February.

Its New Zealand counterpart lost momentum, however, after the country posted a surprise contraction in fourth-quarter GDP.

Overnight, Asia-Pacific shares excluding those in Japan rose 0.8 percent. Stocks in the Chinese mainland rose the same. Australia fell 0.7 percent.

While inflation is expected to reach 2.4 percent this year, US Fed Chair Jerome Powell called it a "temporary" surge that will not change the Fed's pledge to keep its benchmark overnight interest rate near zero.

With long-term Treasury yields climbing again though in Europe, the yield curve was steepening. The spread between two-year and 10-year US yields, the most-keenly monitored part of the yield curve, rose to 155 basis points, the steepest since September 2015.

The 10-year inflation break-even rate hit 2.3 percent, indicating inflation expectations are now at their highest since January 2014.

The reaction in commodity markets was a small dip in Brent oil prices to US$67.6 a barrel. Traders also pointed to rising US crude inventories and expectations of weaker demand in Europe, where the coronavirus vaccine roll out is faltering.

Gold dipped 0.3 percent to iS$1,737 per ounce.