HONG KONG: Asian equities rallied and the dollar extended losses after the Federal Reserve signalled it would slow down its pace of interest rate hikes, providing some much-needed respite to investors fretting over the cost of borrowing.

Dealers are also keeping an eye on top-level talks between China and the United States aimed at resolving their long-running trade war, which kicked off on Wednesday.

The US central bank sparked a flurry of equity buying after chairman Jerome Powell said the case for lifting rates had “weakened somewhat” as the global economy stutters.

“In this environment, we believe we can best support the economy by being patient in evaluating the outlook before making any future adjustment to policy,” he said.

The Fed also said it could slow down the reduction of its securities holdings, which would also help keep rates lower.

“Wow — Powell to markets — we hear you and we have adjusted policy accordingly,” Chris Rupkey, chief financial economist at MUFG Union Bank, said.

The Fed “also caved on the balance sheet by saying interest rates are still the primary policy making tool, but they are prepared to adjust the pace of balance sheet normalisation if economic and financial developments require it”, Rupkey added.

The news provided a further boost to markets, which were dragged for most of 2018 by concerns that rising rates would make it costlier for them to borrow to invest.

Wall Street rallied, with dealers there also cheering healthy earnings from big-hitters, including Facebook and Boeing.

Those gains filtered through to Asia, where Tokyo ended the morning 0.9 percent higher.

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