GLOBAL MARKETS-Global shares rally, bond yields fall after Fed decision

* Fed jolts by not tapering bond purchases

* Bonds yields drop in Japan, Germany

* Dollar lower vs euro

* Emerging market stocks and currencies rally

By Ryan Vlastelica

NEW YORK, Sept 19 (Reuters) - World shares rose and bond

yields fell on Thursday, a day after the U.S. Federal Reserve

unexpectedly held back on trimming its massive stimulus program.

The Fed announced its decision before the close of U.S.

markets on Wednesday, sending Wall Street to new highs. While

Wall Street's major indexes showed little follow-through on

Thursday, markets that were closed at the time of the statement

-- including those in Europe and Asia -- surged.

Investors celebrated the prospect of continued stimulus in

the world's largest economy, even though the Fed said it was

sticking with the current pace of bond purchases because of

concerns about the strength of U.S. recovery. The Fed also cut

its growth outlook for both 2013 and 2014.

MSCI (NYSE: MSCI - news) 's world share index, which tracks

equities in 45 countries, jumped 0.9 percent to a five-year high

as large gains in Asian markets were followed by a 0.5 percent

rise in European shares.

The Dow Jones industrial average was down 24.61

points, or 0.16 percent, at 15,652.33. The Standard & Poor's 500

Index was down 1.49 points, or 0.09 percent, at 1,724.03.

The Nasdaq Composite Index was up 1.54 points, or 0.04

percent, at 3,785.18.

"After the substantial move yesterday and people digesting

the fact that tapering is put on hold, I don't expect a big move

today," said Ryan Detrick, senior technical strategist at

Schaeffer's Investment Research in Cincinnati, Ohio.

The chance that U.S. interest rates could stay low for

longer was further raised after a White House official said that

Janet Yellen, the Fed's vice chair and a noted policy dove, was

the front-runner to take over the Fed when Ben Bernanke steps

down in January.

"The bottom line is that the (Fed) meant to send an

extremely dovish message, not only through the lack of tapering,

but also with its 2016 forecasts," analysts at Barclays (LSE: BARC.L - news) wrote,

adding that they now expected the first rate hike to occur in

June 2015 rather than March 2015.

The prospect of delayed rate hikes helped emerging markets,

which have been suffering as higher yields in the developed

world attracted much-needed foreign capital.

The main emerging market stock index jumped 2.4

percent. The Turkish lira and Indian rupee leapt

while Indonesia's main stock index climbed 4.7 percent.

"Markets are thrilled, and much-needed reprieve for battered

EM investors is on its way," said Frederic Neumann, co-head of

Asian economics research at HSBC (LSE: HSBA.L - news) . "With Chinese data having

turned up, and the Bank of Japan running at full speed, it looks

like Asia might get its mojo back."

Australian shares jumped 1.1 percent and Japan's

Nikkei added 1.8 percent.

FED PROTEST

The Fed's decision to keep its asset buying at $85 billion a

month was seen as a rebuff to the sharp rise in Treasury yields

over recent months, which was proving a headwind for the housing

market and the U.S. economy in general.

Ten-year Treasury bonds were down 9/32 in price,

with the yield at 2.7244 percent.

Overseas, Japanese debt yields dropped to four-month lows

while in Europe German Bund yields fell as low as

1.827 percent after their biggest drop in over a year.

Against a basket of currencies, the dollar was up

slightly, recovering from earlier losses of more than 1 percent

that took the index to its lowest level since February.

The euro was flat at $1.3524, having already gained

1.2 percent on Wednesday to hit its highest level in almost

eight months.

In the commodities market, Brent crude fell 1.2

percent to $109.26 per barrel, while U.S. crude futures

slid 0.9 percent. Gold was up 0.4 percent, extending a

4.2 percent surge in Wednesday's session.

Oil prices dropped after Iran's president said his country

was not seeking war with any other nation, helping unwind a risk

premium and foster speculation of a recovery in oil exports to

the West.