Fed rate decision lifts emerging currencies but stocks fall in Hong Kong

The dollar retreated on Friday, with emerging market currencies seeing healthy gains, after the Federal Reserve held off hiking interest rates, but most equities markets also fell after the bank's downbeat outlook on the global economy.

After one of the most eagerly awaited meetings in years, the US central bank's head Janet Yellen said the crisis in China and recent turmoil in world markets had played a role in keeping borrowing costs at zero.

The Fed's decision followed warnings from across the world about the dire impact a lift-off could have, with the World Bank predicting this week it would cause a "perfect storm" in financial markets.

Following the announcement, Yellen told a news conference: "A lot of our focus has been on risks around China, but not just China, emerging markets more generally and how they may spill over to the United States.

"We've seen significant outflows of capital from those countries, pressures on their exchange rates and concerns about their performance going forward," Yellen said of the emerging market economies.

"The question is whether or not there might be a risk of a more abrupt slowdown than most analysts expect."

The news pushed the dollar lower. It was buying 119.98 yen in Tokyo early trade, compared with 120.90 yen in Asia Thursday. The euro was at $1.1414 against $1.1302 a day earlier.

Struggling emerging market currencies, which have been rising this week on hopes the bank would hold fire, were also higher. The South Korea won added 0.05 percent, the Malaysian ringgit gained 0.60 percent and the Singapore dollar was 0.15 percent higher.

- 'Breathing room' -

"For emerging-market central bankers, the Fed has given them some much-needed breathing room," Jonathan Lewis, a principal at New York-based Samson Capital Advisors LLC, said.

"Postponing a Fed tightening gives these central bankers room to be more accommodative, without their actions being offset by a tighter Fed," he added, according to Bloomberg News.

Economists had warned a rise now could severely hurt emerging economies as investors likely have withdrawn cash to the United States for better and safer returns.

This, in turn, would have forced other central banks to hike rates -- at the same time as trying to foster growth -- in a bid to support their currencies and prevent a flight of capital.

While the news means US monetary policy remains more accommodative, Yellen's comments on the state of the world economy also spooked investors, with regional stock markets lower.

Tokyo tumbled almost two percent in early trade, having climbed for the past three days. Sydney and Seoul also retreated.

However, Tai Hui, the Hong Kong-based chief Asia market strategist at J.P. Morgan Asset Management, said a hike was still on the cards as the US economy continues to pick up strength.

"The reality is that the rate hike is still going to come, whether it's before the end of the year or in 2016," he told Bloomberg TV in Hong Kong. "So I don’t believe we’ve cleared anything."