Hong Kong stocks rose more than one percent, pushing its rally into an eighth successive day
Hong Kong stocks rose more than one percent, pushing its rally into an eighth successive day AFP

European stock markets diverged Thursday as investors digested the Federal Reserve interest rate outlook and awaited Apple's latest results on eve of critical US payroll data.

London's stocks rose, helped by forecast-busting first-quarter earnings from energy major Shell, but Frankfurt and Paris retreated as both markets returned from a May Day holiday.

Federal Reserve boss Jerome Powell warned Wednesday US interest rates would stay higher for longer, after the central bank left borrowing costs on hold once again.

Powell's remarks, however, were tempered by his assurance that rates would not likely be hiked again, soothing worries in some quarters that the bank's battle to bring inflation back to its two percent target would need to be stepped up.

The Fed also said it would slow down the pace at which it shrinks its balance sheet, having bought up vast amounts of bonds previously to keep rates low.

"As expected, the Fed kept its rates unchanged and said that they are not confident to cut the interest rates as inflation has started to show signs of heating up," said Swissquote Bank analyst Ipek Ozkardeskaya.

"Jerome Powell reassured that the Fed's next move will unlikely be a rate hike. That was a relief. Then, the Fed said that it will start tapering quantitative tightening. The market reaction to the decision was mixed."

The yen edged back Thursday following another surge against the dollar that fuelled speculation Japanese authorities had intervened for a second time this week, after the comments from Powell.

On the earnings front, traders are hotly awaiting quarterly results from iPhone maker Apple amid persistent fears over its performance in Asian powerhouse China.

"Apple results are the focus when the market closes in the US on Thursday night," said XTB analyst Kathleen Brooks.

"We already know that sales of the iPhone, Apple's flagship product, have fallen substantially in China in the first quarter, so the question is what this does to earnings."

Meanwhile, while US traders were spooked by the prospect that Fed rate cuts were still some time off, analysts said the central bank had been less hawkish than feared.

Powell's comments came after a string of data at the start of the year saw inflation come in above expectations, while the US economy and labour market remain in rude health.

Soon after the announcement, the yen soared around three percent to 153.04 per dollar, raising suspicion that Japanese officials had stepped into forex markets.

A rally on Monday -- after the yen hit a new 34-year low of 160.17 -- had led to similar speculation.

Traders will be keeping a nervous watch on developments on Friday and Monday, which are holidays in Japan that usually cause thin liquidity, while analysts said a strong US jobs report could also send the dollar racing again.

London - FTSE 100: UP 0.4 percent at 8,152.76

Paris - CAC 40: DOWN 0.8 percent at 7,924.60

Frankfurt - DAX: UP 0.1 percent at 17,944.11

EURO STOXX 50: DOWN 0.4 percent at 4,903.46

Tokyo - Nikkei 225: DOWN 0.1 percent at 38,236.07 (close)

Hong Kong - Hang Seng Index: UP 2.5 percent at 18,207.13 (close)

Shanghai - Composite: Closed for a holiday

New York - Dow: UP 0.2 percent at 37,903.29 (close)

Dollar/yen: UP at 155.09 yen from 154.57 yen on Wednesday

Euro/dollar: DOWN at $1.0704 from $1.0712

Pound/dollar: DOWN at $1.2513 from $1.2527

West Texas Intermediate: UP 0.8 percent at $79.65 per barrel

Brent North Sea Crude: UP 0.6 percent at $83.95 per barrel