Asian stocks rallied for a second day on Thursday after the Federal Reserve reinforced that interest rates will be kept at a record low for a while, but Treasuries extended losses as the Fed shied away from boosting debt purchases.

Futures on European stock indexes pointed to a flat start.

Property shares were among the biggest gainers on investor hopes that low rates will spur construction and demand, with top Hong Kong developer Sun Hung Kai Properties <0016.HK> rising 4.9 percent after it hiked prices for flats in a new project.

The Fed left interest rates near zero percent but tweaked its statement to say that financial markets had improved and signaled less concern about deflation, even while repeating the economy will remain weak.

But the Fed did nothing to ramp up its hefty buying of U.S. Treasuries and mortgage-related bonds, disappointing some market players hoping for more action to stem the jump in Treasury yields that has threatened the economy's recovery.

The dollar gave up some of its gains scored on relief the Fed was not monetizing more debt, surrendering some ground to higher-yielding currencies, such as the Australian dollar, on the rise in stocks.

The markets have been in risk avoidance mode recently, but that seems to have been reversed in the last 24 hours, said Drew Bradford, head of foreign exchange at Deutsche Bank in Tokyo.

The MSCI index of Asia-Pacific shares outside Japan rose 1.4 percent, pulling further away from a one-month low struck earlier in the week. From its lows in early March, the index has soared 52 percent.

For that reason, some analysts said the market had probably run too far on hopes that consumer demand in developed countries will soon pickup and keep Asian manufacturers busy pumping out electronics and other goods.

Analysts at Macquarie Securities noted that the MSCI benchmark for Asia is trading at about 15 times 12-month forward earnings, above a long-term average of 13.1 times.

For this trend to continue, final demand now needs to come through in a meaningful way, said Daniel McCormack, Asia equity strategist at Macquarie.

In Japan, shares of Aozora Bank <8304.T> and Shinsei Bank <8303.T> both jumped on news they were in merger talks. The Nikkei average <.N225> climbed 2.2 percent, led by financial and property stocks.

But investors were less enthusiastic about Sinopec's <0386.HK> <600028.SS> planned purchase of Swiss oil explorer Addax Petroleum Corp for $7.24 billion, in what would be China's biggest overseas acquisition.

Analysts said the deal was expensive for Sinopec, China's biggest oil refiner. Its Hong Kong-listed shares were up 1.1 percent.

TREASURIES FALL

U.S. Treasuries fell further after the Fed refrained from increasing its $300 billion of purchases that it had announced in March and is poised to complete in the next few months.

Benchmark 10-year notes shed 8/32 in price to yield 3.717 percent, up 2 basis points from late U.S. trade and about 9 basis points higher in the past two days. But the 10-year U.S. yield is down about 30 basis points from the eight-month peak reached earlier in the month.

The drop in Treasuries only briefly dented other government bonds. The benchmark 10-year Japanese yield touched a three-month low of 1.370 percent at one point, with domestic investors continuing to reinvest funds from a big batch of maturing bonds this month.

The dollar slipped in Asia after jumping the previous day, partly after the Swiss central bank was suspected of intervening aggressively to weaken the franc against the dollar and euro -- part of its current quantitative easing policy.

The dollar index, a gauge of its performance against six major currencies, slipped 0.2 percent to 80.403 <.DXY>.

Against the yen, the dollar edged up 0.7 percent to 96.35 yen. The euro was up 0.3 percent at $1.3975. The Australian dollar climbed 0.4 percent to $0.7995.

Gold was up $4 an ounce at $935, while U.S. crude oil edged up 25 cents to $68.92 a barrel.

(Additional reporting by Charlotte Cooper in Tokyo; Editing by Jan Dahinten)

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