NEW YORK (CNN/Money) - Long-term Treasurys swung higher on Tuesday after the Federal Reserve hiked interest rates as expected and hinted it would keep tightening, at least for the moment.
At around 2:40 p.m., about 25 minutes after Fed's announcement, the benchmark 10-year note rose 8/32 of a point to 101-24/32 to yield 4.03 percent, down from 4.05 percent late Monday.
Meanwhile, the 30-year bond gained 17/32 of a point at 108 even to yield 4.83 percent, down from 4.86 percent. Bond prices and yields move in opposite directions.
Short-term bond prices, however, suffered as the market saw a greater chance of a rate increase at the Fed's next meeting in November.
The two-year note lost 2/32 of a point to 99-26/32 to yield 2.47 percent, and the five-year stood unchanged at 100-15/32 to yield 3.27 percent.
In the currency market, the U.S. dollar reversed course against the euro as the euro rose more than 1 percent after the Fed announcement on interest rates.
The dollar initially pushed higher after the Fed decision, then flipped course to slip swiftly. The euro surged to one-month highs around $1.2345 from around $1.2282, up over 1.3 percent on the day.
Against the yen, the dollar slipped to about ¥109.85 from around ¥110.0 shortly before the Fed decision and was little changed on the day.
The widely expected and unanimous decision by the policy-setting Federal Open Market Committee moves the benchmark federal funds rate -- which influences credit costs throughout the economy -- to 1.75 percent.
The Fed lifted rates by matching amounts in June and at its last policy session on Aug. 10, spelling an end to a lengthy period of super-low rates.
"After moderating earlier this year partly in response to the substantial rise in energy prices, output growth appears to have regained some traction, and labor market conditions have improved modestly," the Fed said in a statement outlining its rate decision, which also increased the largely symbolic discount rate to 2.75 percent.
The Fed also said inflation pressures and expectations had eased despite a rise in energy costs.
A soft pace of job creation and higher energy prices have put stress on U.S. consumers, leading to a drop in retail sales in August. Some economists believe this means the rate-rise cycle is near an end though the Fed has contended an economic "soft patch" that began mid-year will prove short-lived.
The central bank said the risks to the U.S. economy remained balanced between weaker growth and higher prices and repeated a pledge to undertake a "measured" course of rate increases.
This was the final policy meeting before the Nov. 2 presidential vote. Dueling Democratic and Republican campaigns have presented starkly contrasting views of the economy's health and direction.
President Bush says his administration's tax cuts lifted the United States out of economic doldrums that began before he came to power in 2001.
For his part, Democratic presidential contender Sen. John Kerry says Bush's policies have failed to spur hiring and have fueled record budget deficits that imperil the future.
There was heartening news just ahead of Tuesday's Fed meeting. A Commerce Department report showed that August housing starts unexpectedly gained 0.6 percent to a seasonally adjusted annual rate of two million units.
The U.S. central bank has been attempting to bring official interest rates back to a level regarded as normal or "neutral" -- one that neither hinders expansion nor spurs it so much that it triggers inflation pressures. Exactly where that level is remains open to debate.
Private-sector economists argue a neutral rate could be around 3 percent but Greenspan has said only that the Fed won't know where the right level lies "until we get there."
-- from staff and wire reports
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