A trader speaks on the phone during trading at the Frankfurt stock exchange on Thursday. European shares surged as investors took the US interest rate rise and the prospect of further tightening as a sign of confidence in the world's biggest economy.

AFP/London

Global stock markets rallied on Thursday after the US Federal Reserve ended months of uncertainty by raising interest rates for the first time in nearly a decade.

After strong gains across Asia, Frankfurt's main index led the way in Europe, surging by 3.24% in mid-afternoon deals. Paris was up over 2% while London rose 1.19%.

"With the uncertainty surrounding the Fed now cleared and panic not ensuing, everything is now in place for a strong end to the year," said Craig Erlam, senior market analyst at Oanda trading group.

Wednesday's widely expected move by the US central bank signalled that the world's number-one economy is in rude health.

The Fed raised its benchmark federal funds rate, locked near zero since the 2008 financial crisis, by a quarter point to 0.25-0.50%, saying the US economy is growing solidly and should accelerate next year to a respectable 2.4% pace.

In response, the dollar has clocked up advances against most other currencies. The euro slid to $1.0842 from $1.0911 late in New York Wednesday.

"Investors are no doubt relieved that the Fed has finally got around to raising interest rates, removing some policy uncertainty, while the normalisation of monetary policy also provides a much needed signal of confidence in the US economic recovery," said Lee Hardman, currency analyst at Bank of Tokyo-Mitsubishi UFJ.

Fed chair Janet Yellen said the decision "recognises the considerable progress that has been made toward restoring jobs, raising incomes and easing the economic hardship of millions of Americans".

The bank sees US growth picking up pace next year despite a slowdown in most other world economies, particularly China, and also stressed future rate hikes would be "gradual", forecasting 100 basis points throughout 2016.

'A positive'  

Yellen said the move represents a US economy that "is a source of strength to the emerging markets and other economies around the globe".

However, she added that there was still room for improvement in the jobs market while inflation was still below target.

In Asia, Tokyo ended 1.6% higher, Shanghai put on 1.8% and Sydney climbed 1.5%.

The rally comes after a torrid month that saw equities battered - including nine straight losses in Hong Kong - by concerns about the global outlook and plunging oil prices that skittled energy firms.

"What is clear is that equity markets are taking the rate hike as a positive," said IG Markets analyst Angus Nicholson.

That positive outlook appeared to dampen a bit Thursday on Wall Street which slipped into negative territory shortly after opening in the green.

Around 10 minutes into trade, the Dow Jones Industrial Average was down 0.29% at 17,698.31 points.

The broad-based S&P 500 slipped 0.06% and the tech-rich Nasdaq Composite Index lost 0.09%.

Despite the upbeat sentiment, oil prices remain bolted to seven-year lows.