Markets in the United States suffered some sharp falls overnight, after the Federal Reserve’s latest policy statement disappointed investors.

Australian shares followed suit in early trading with the S&P ASX 200 index down 6.7 points to 4939.7 in early trading.

The US central bank kept interest rates on hold, as was widely tipped, but there was an expectation the Fed would give some sort of clear signal it may scale back future rate rises because of the recent turmoil in global markets.

The statement said the Fed was closely monitoring global and economic financial developments, but gave an otherwise upbeat view of the US economy.

• Now could be the moment to get into the housing market
• Consumers give up on houses and spend on retail
• Inflation below RBA target

Elsewhere, US oil futures rose, after trading down as much as 4 per cent near $US30 a barrel.

The turnaround came after data was published showing a jump in weekly demand for products, including heating oil, after a cold front hit the country.

The Dow Jones Industrial Average lost 1.4 per cent to close at 15,944.

The S&P 500 gave up 1.1 per cent to 1,883 and the Nasdaq slumped 2.2 per cent to 4,468.

European shares recovered to finish higher, because of the rebound in oil prices.

In London, the FTSE 100 gained 1.3 per cent to 5,990.

Local shares are set to follow Wall Street lower and, at 8:25am (AEDT), the ASX SPI 200 was down 0.6 per cent to 4,885.

The Australian dollar was worth 70.25 US cents, having added value overnight.

On the cross-rates, it was buying 64.48 eurocents, 49.34 British pence, 83.36 Japanese yen and $NZ1.092.

West Texas crude oil had risen to $US32.27 a barrel following its rebound, a barrel of Tapis was fetching $US34.52 and spot gold had edged up to $US1,124.54 an ounce.

The world’s most powerful central bank says it is keeping a close eye on global economic developments given the volatility on financial markets so far this year.

While this morning’s “on hold” decision by the US Federal Reserve came as no surprise, economists are trying to determine what the tweaked language means for future interest rate rises.

Given the global financial tremors since December’s well-anticipated rate rise from zero to between 0.25 and 0.5 per cent, there was a high expectation of toned down messages in the Fed’s official statement.

The key commentary is that the Fed is “closely monitoring global economic and financial developments”, even though the statement did not specially mention the flashpoints of China and oil.

Perhaps more significantly, the statement removed a line from the more optimistic December statement when it said risks to the outlook were “balanced”, which is no longer the case.

Despite the global jitters – fuelled by fears or a hard landing in China, plunging crude oil prices and the fallout from the December rate hike – the Fed appears committed to slowly raising rates back to a normalised level.

Confirmation that more rate rises would be “gradual” disappointed investors who had been hoping the Fed would consider scaling back its rate rise strategy, which could see as many as four hikes this year.

The reiteration that an era of cheap and easy money would continue to dry up saw the Dow Jones Industrial Average dive to close almost 1.4 per cent weaker.

– with AAP