Reuters - European shares rallied on Thursday after the Federal Reserve sugar-coated the decision to start winding down its crisis-era stimulus with a promise to keep record low interest rates in place even longer than previously signalled.

After months of agonising, investors took the Fed's decision to trim its bond buying by $10 billion to $75 billion a month largely in their stride, considering it a modest step the U.S. economy could well withstand.

Wall Street had ended at a record high and after big gains in Tokyo and some other parts of Asia, European stocks raced out of the blocks up 1.5 percent in their biggest jump in over two months.

The dollar was the other major beneficiary, though it was showing signs of fatigue as European trading picked up steam.

It had surged as far as 104.37 yen but was back at 103.90 by 0915 GMT, while the euro was finding its feet again having toppled back to $1.3675 from a $1.3811 top.

Crucially, the Fed softened the blow by making its forward guidance on interest rates even more dovish.

"It likely will be appropriate to maintain the current target range for the federal funds rate well past the time that the unemployment rate declines below 6-1/2 percent, especially if projected inflation continues to run below the committee's 2 percent longer-run goal," the Fed statement said.

Samy Chaar, senior investment strategist at Lombard Odier's private banking division noted the Fed's forecasts for the funds rate had also been trimmed out to the end of 2016.

"It's a dovish taper and for now it's the perfect deal," he said. "The equity market has appreciated the move but what is also important is that the bond market has not reacted negatively."

The market seemed to agree, with the Dow ending Wednesday up 1.84 percent, while the S&P 500 gained 1.66 percent and the Nasdaq 1.15 percent.

In Asia, stocks gained from Sydney to Seoul, while MSCI's broadest index of Asia-Pacific shares outside Japan <.MIAPJ00 00PUS> edged up 0.2 percent.

The slide in the yen was viewed as positive for Japanese exports and profits, and thus for the Nikkei which climbed 1.7 percent, hitting its highest closing level in six years.

Shanghai broke ranks with a drop of 0.6 percent after China's central bank declined to add liquidity to the banking system, pushing up money market rates.

BONDS KEEP CALM AND CARRY ON

The Fed's message that tapering was not tightening looked to have resonated in debt markets as Fed fund futures held broadly steady out to the early 2016 contracts. A first hike in the funds rate is not fully priced in until November 2015.

Treasury yields were stable for three years ahead, while rising at the longer end as the yield curve steepened. Yields on 10-year notes increased marginally to 2.88 percent, but remain below their 2013 peak of 3 percent.

European debt markets barely blinked. Benchmark German borrowing costs actually nudged lower, while their was little reaction elsewhere in the euro zone or in UK gilts.

Still, tapering could be a double-edged sword for some countries since it could accelerate the "great rotation" of funds out of emerging markets and into developed world assets.

Indonesia, the Philippines, Thailand and Malaysia have all been hit to a varying extent in recent months.

The Indonesian rupiah hit a fresh five-year low, though the Fed's move was welcomed by Deputy Governor of Bank Indonesia, Perry Warjiyo.

"The announcement provides more clarity for the direction of Fed monetary policy," the deputy governor told Reuters.

Others are also better prepared for the change. Notably the mood around India has improved enough that its central bank held off on hiking interest rates on Wednesday, surprising many.

Commodity markets showed some trepidation. Gold slumped over $20 to a six-month low of $1,203 an ounce and uncomfortably close to the year low at $1,180.74. Copper fell the most in nearly three weeks to be down 0.8 percent.

Oil prices took only a small hit, with investors perhaps encouraged by signs of a pick-up in global growth.

Brent crude eased 5 cents at $109.57 a barrel. U.S. oil futures were steady at $97.84 a barrel and still up over a dollar on the week so far.