Stocks, bonds, and commodities surged and the dollar sank on Friday upon speculation of two years that U.S. rate rises could be coming to an end, easing concerns that higher borrowing costs could hurt the world's largest economy.

Financial bookmakers are betting on Britain's FTSE 100, France's CAC 40 and Germany's DAX opening 50-80 points higher.

"It's money coming back in to all capital markets, after fears the Fed could put the economy into recession," said John Brady at ABN AMRO Bank in New York.

The U.S. Federal Reserve raised on Thursday its key Fed funds rate by 25 basis points to a five-year high of 5.25 percent, as expected, but went on to say that slowing economy should help rein in inflation. It also dropped a phrase from its previous statement that "further policy firming may yet be needed."

Japan's Nikkei stock average soared 2.5 percent to a three-week closing high of 15,505.18, led by shares of industrial robot maker Fanuc and exporters such as Toyota Motor Corp.

The MSCI's key index for shares of Asia's biggest companies outside Japan jumped 3.1 percent to a three-week high.

"The Fed's move has erased concerns that the U.S. economy could face stagflation. That means earnings at Japanese companies won't be dented by such a risk anymore," said Yosuke Shimizu, head of investment information centre at Monex Inc.

The prospect that interest rates and borrowing costs may be close to peaking also drove U.S. Treasuries and Japanese government bond futures higher.

The weak dollar bolstered gold and a report showing stronger-than-expected first-quarter growth in the United States boosted copper and other industrial metals and pushed U.S. crude oil futures to a seven-week high of $73.85 a barrel.

Before Thursday's Fed meeting, markets had almost priced in another quarter percentage point rate rise in August and some investors had even expected the central bank to raise rates as much as 50 basis points on Thursday.

"The possibility that the Fed won't raise interest rates in August has increased," said Kim Joong-hyun, an analyst at Goodmorning Shinhan Securities.

The Dow Jones industrial average rose almost 2 percent and the technology-laden Nasdaq Composite Index jumped close to 3 percent, its biggest one-day percentage rise since March 2004. The dollar slumped as low as 114.45 yen during Asian trading, extending a sharp drop from near-two-month highs the day before following the Fed's statement.

Against the euro the dollar slipped to a three-week low of $1.2733 before recovering some of the losses in early European trades.

"A less-than-hawkish, some might say dovish, (Fed) statement accompanying the fully anticipated 25 basis point hike to 5.25 percent triggered an across-the-board slide in the U.S. dollar," said John Kyriakopoulos, currency strategist at National Australia Bank.

The dollar had climbed against most major currencies since May as several Fed officials sounded warnings on inflation, prompting risk-averse investors to flock to the safety of the world's most liquid currency.

Some said there may still be enough inflation for the Fed to raise rates one more time before taking a breather.

"There is still the possibility for an additional rate hike by September, and that's what Fed fund futures are pricing in. So any dollar fall will be limited," said Kikuko Takeda, currency strategist at Bank of Tokyo-Mitsubishi UFJ.

The dollar's decline and crude oil's uptrend drove spot gold prices to a two-week high of $601.25 an ounce.

The benchmark copper price on the London Metal Exchange extended Thursday's 5.8 percent surge to trade on Friday as high as $7,460 a tonne.

Shanghai copper futures rose by their daily 4 percent limit.

"Yesterday's announcement by the Fed provided enough security on the growth outlook for investors to jump back into metals," Peter Richardson, chief metals economist at Deutsche Bank, said in a daily note.

"Given the supportive fundamentals, particularly low LME stocks, these are still providing a solid outlook."

Japanese government bond futures rose to 131.65, up 0.07 points, taking their cue from a rally in U.S. Treasuries. The yield on the benchmark 10-year U.S. Treasury fell to 5.181 percent from Wednesday's four-year high of about 5.25 percent.

The Asian stocks surge was led by a 3.2 percent gain in Fanuc and 4.2 percent surge in Toyota Motor.