European stocks rallied on Wednesday after large gains in Asia and New York as the US Federal Reserve indicated that it would keep interest rates on hold near zero for two years. Frankfurt, London and Paris jumped by about two percent in early morning trade, as investors welcomed the US central bank's announcement, before trimming gains in choppy trade. Approaching midday, London's benchmark FTSE 100 index was up 1.01 percent despite news that the Bank of England has downgraded its 2011 British economic growth forecast. Elsewhere, Frankfurt rose 2.05 percent and Paris gained 0.55 percent while Milan slid 0.41 percent and Madrid shed 0.04 percent in volatile trade after the two markets recovered sharply in recent days. "Improved sentiment has been seen on a busy morning after the Federal Reserve rate announcement," said Atif Latif, director of trading at Guardian Stockbrokers in London. "Their assurance that they will maintain their fund rate at exceptionally low levels 'at least through mid-2013', with suggestions that 'QE3' might be back on the table ... gave US stocks a boost," he said, referring to further possible Fed stimulus measures. In foreign exchange deals, the dollar steadied against the euro, after sliding earlier on the Federal Reserve news. The European single currency dipped to $1.4358 from $1.4374 in New York late Tuesday. Wall Street jumped Tuesday after a dovish Fed admitted economic growth this year had been "considerably slower" than expected and indicated inflation fears had eased. The bank's policy committee stopped short of offering a successor to the $600 billion "QE2" stimulus programme that wound up in June -- but it said it was reviewing available tools to boost a slowing economy. New York's Dow Jones Industrial Average soared nearly four percent, one day after plummeting on the shock of Standard & Poor's downgrade of Washington's top AAA credit rating. The positive mood spilled over into Asia on Wednesday. Tokyo rose 1.05 percent, Sydney added 2.64 percent and Seoul gained 0.27 percent. Hong Kong meanwhile jumped 2.34 percent, bouncing back after a disastrous showing on Tuesday when it lost 5.66 percent. Shanghai gained 0.91 percent. The Fed maintained its key interest rate at the record low 0.0-0.25 percent -- in place since December 2008 -- and vowed to keep "exceptionally low" rates "at least through mid-2013." IG Index sales trader Ben Critchley said that the Fed news had sparked something of a turnaround in sentiment after recent sharp losses. The "statement by the Federal Reserve about keeping interest on the floor for at least the next two years has proved to be the excuse that markets were looking for to drag them out of their steep spiral," said Critchley. "The test will be over the next couple of days if the major indices can hang onto this bounce." Meanwhile, oil prices rebounded by more than $3 on Wednesday, mirroring global shares, after plunging the previous day as traders fretted over the Fed's growth outlook for the United States -- the world's number one crude consuming nation. There was also less demand for traditional safe haven gold, which slipped to $1,760.60 per ounceon Wednesday, having hit a record high $1,780.10 on Tuesday.