Stocks on major markets slipped on Friday and bond prices rose, pushing yields sharply lower, after the US Federal Reserve on Thursday clung to its near-zero interest rate policy with global economic growth slowing.

Stocks and currencies in emerging markets, which are more vulnerable to higher US interest rates, briefly welcomed the Fed's decision to postpone an interest rate rise, but their bounce faded with the persistent sell-off in developed markets.

Short-term lending rates, used as proxies for market expectations for the Fed's next move, shifted dramatically. December's fed funds futures contract rose to drop its rate to 21.5 basis points, implying only about a 44 per cent chance of a rate increase by the end of the year.

"Investors are wrestling with how concerned they should be regarding global growth," said Jeremy Zirin, chief equity strategist at UBS Wealth Management in New York.

"The Fed has introduced a quasi-third mandate on global growth, apart from the labour market and inflation."

US debt yields remained under downward pressure, with the US Treasury two-year note's yield at 0.678 per cent, a day after it hit a four-and-a-half-year high of 0.819 per cent.

US stock prices weakened, following other developed markets. The Dow Jones industrial average .DJI ended down 1.74 per cent at 16,384.79, while the S&P 500 .SPX finished down 1.61 per cent at 1,958.08 and the Nasdaq Composite .IXIC closed 1.36 per cent lower at 4,827.23.

The FTSEuroFirst index of the top 300 European shares closed 1.9 per cent lower at 1,397.57 points .FTEU3, its biggest fall in two weeks.

Japan's Nikkei average .N225 fell 2.0 per cent.

European government bond yields tumbled, tracking the 2-year US Treasury yield's biggest fall since 2010. The 10-year German Bund yield was down 12 basis points EU10YT=RR to 66 basis points for its biggest one-day fall since early July.

YEAR-END US INTEREST RATE RISE?

A growing number of economists are now wondering whether the Fed will raise interest rates at all this year. A Reuters poll of the primary dealers in Treasury securities showed 12 of 17 now see the first rate increase in December.

Fed Chair Janet Yellen said the global economic outlook appeared less certain, adding that recent falls in US stock prices and a rise in the value of the US dollar were already tightening US financial market conditions.

Emerging market equities touched a one-month high before erasing their gains in late trading. MSCI's broadest emerging market index .MSCIEF was down 0.1 per cent, shaving its weekly gain to 3.0 per cent which was still its biggest weekly increase since early April.

The US dollar recovered much of Thursday's loss following the Fed's decision. The dollar index against a basket of major currencies .DXY was up 0.7 per cent at 95.239.

The euro gave up earlier gains, falling from a three-week high of $1.1459 earlier to $1.1298, down 1.2 per cent. The dollar was little changed against the yen to 119.94 yen JPY=.

US crude oil futures CLc1 settled down 4.7 per cent at $44.68 per barrel. Brent crude fell 3.3 per cent to $47.47 a barrel LCOc1.

Gold rose to a near three-week high. Spot gold rose $7.16 or 0.63 per cent, to $1,138.36 an ounce, after earlier hitting $1,141.30. – Reuters