MANILA, Philippines -- (UPDATE) Shares managed modest gains in thin trading on Thursday after the Federal Reserve painted a less pessimistic outlook for the US economy, giving hints it may not raise interest rates any time soon.

The main index rose as much as 1.3 percent early in the session, buoyed by gains on Wall Street after the Fed kept its key rate steady on Wednesday following a two-day meeting.

But inflation-wary investors quickly locked in some gains.

At the close, Manila's 30-company composite index was up 10.81 points or 0.4 percent at 2,521.61, after moving between 2,510.80 and 2,543.69.

The all-share index edged up 2.09 points or 0.1 percent to 1,599.71.

There were 57 advancers and 38 decliners, while 56 were unchanged.

Turnover remained lean at P2.3 billion compared to Wednesday's P2.2 billion.

The US central bank on Wednesday kept the benchmark federal funds rate at 2.0 percent following a series of rate cuts since September, and noted "some firming in household spending."

The Fed also said "although downside risks to growth remain, they appear to have diminished somewhat." But it stressed that "the upside risks to inflation and inflation expectations have increased."

"All the negatives have been expected, but investors were pleasantly surprised by the Fed's assessment that risks to US growth have lessened. Not everyone will agree but it will help equities markets in the short term," said Jose Vistan Jr., research director at AB Capital Securities.

"The Fed is saying that despite inflationary pressures, there is no need yet to hike interest rates. It decided to let inflation run its course and higher prices of commodities will correct when demand is dampened."

Reacting to the Fed's move, Philippine central bank chief Amando Tetangco Jr. said on Thursday local policymakers would keep an eye on the direction of short-term capital and hinted that rates might be raised eventually, given heightened concern about inflation.

"The Fed's emphasis on inflation as reflected in last night's statement could be positive for emerging market economies in the medium term," Tetangco told reporters in a mobile phone text message. He did not elaborate.

"Nonetheless, we would continue to monitor the direction of short-term capital flows as well as other domestic developments to ensure that our inflation expectations are contained."

The Philippine central bank raised key interest rates by 25 basis points early this month, the first time since 2005 and after cutting them four times in as many months from October last year, to curb inflation.

Local inflation accelerated to a nine-year high of 9.6 percent in May, due to soaring energy and food prices, and could hit double digits this month.

"Inflation may jump to as high as 10.3 percent this month and peak at around 12 percent in the third quarter," said Jonathan Ravelas, chief strategist at Banco de Oro Unibank.

Index leader Philippine Long Distance Telephone Co. rose 0.2 percent to P2,420.00, extending its rebound from oversold levels but was off the day's high of P2,460.00.

Interest-rate sensitive property developers fell, with Megaworld Corp. slipping 4.4 percent to P1.32 following recent gains. Ayala Land Inc. was down 1.0 percent at P9.80 and Robinsons Land Corp. lost 2.5 percent to P7.80.

($1 = P44.50)

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