GLOBAL MARKETS-Stocks up on ECB cut, but euro slumps after Draghi

Thu May 2, 2013 12:18pm EDT

* ECB cuts rates 25 bps to all-time low
    * Euro tumbles as ECB suggests open to negative deposit
rates
    * Oil rises above $100 after ECB rate cut
    * Bond prices edge higher


    By Herbert Lash
    NEW YORK, May 2 (Reuters) - The euro slumped against the
dollar on Thursday after the European Central Bank cut interest
rates to an all-time low and its president suggested the
possibility of negative deposit rates in the future, while
global equity markets rallied.
    The ECB lowered its main rate by a quarter percentage point
to 0.50 percent, its first cut in 10 months, and held out the
possibility of further policy action to support the
recession-hit euro zone economy. 
    The world's biggest central banks, including the Federal
Reserve and the Bank of Japan, are trying to encourage economic
growth through bond-buying programs that have pushed interest
rates to historic lows and encouraged equities investors.
    The benchmark S&P 500 index was close to setting an all-time
high, and European shares rebounded after earlier declines.
    The rate cut was widely expected after ECB President Mario
Draghi said last month that the bank stood ready to act. But the
euro fell after Draghi said the central bank is technically
ready for negative deposit rates. 
    The euro slid as low as $1.3038, according to Reuters
data, and was last at $1.3046, down 1.0 percent on the day.
    If negative deposit rates were adopted, euro zone banks
would have to pay to deposit money at the central bank, giving
them an incentive to lend money rather than hoard it.
    "You've got the Fed still in stimulus mode and Japan
surprising markets with the size of their latest stimulus
package. Now you have the ECB cutting rates," said Todd
Salamone, director of research at Schaeffer's Investment
Research in Cincinnati.
    "It all adds to the theme that global central banks are in a
stimulus mode and that is positive for equities," he said.
    The Dow Jones industrial average was up 108.59
points, or 0.74 percent, at 14,809.54. The Standard & Poor's 500
Index was up 13.57 points, or 0.86 percent, at 1,596.27.
The Nasdaq Composite Index was up 37.07 points, or 1.12
percent, at 3,336.20. 
    Stocks also rose on news the number of Americans filing new
claims for jobless benefits fell sharply last week to the lowest
level since the early days of the 2007-09 recession, suggesting
the job market is still healing despite a still weak economy.
 
    Other data showed a narrowing of the U.S. trade deficit in
March, although drops in imports and exports provided a warning
about the strength of domestic and foreign demand. 
    Leading European shares, as measured by the FTSEurofirst 300
index, clawed back into positive territory after having
spent most of the morning in the red. The index rose 0.49
percent to a provisional close at 1,207.40.
    MSCI's all-country world equity index also
pared losses to rise 0.15 percent.
    German Bund futures set record highs and two-year yields
turned negative after the ECB left the door open for further
monetary easing.
    Bund futures rallied more than 50 basis points to a
record high of 147.20 and German borrowing costs fell, as
investors priced in more monetary easing down the line.
    U.S. Treasuries prices edged higher despite the lower
jobless claims, with the benchmark 10-year note up 1/32 in price
to yield 1.6289 percent.
    Oil rose above $100 a barrel as some investors saw this
week's price slide as overdone, although ample supply and
concerns about the outlook for demand due to shaky economic
growth limited the rally.
    Brent crude rose $2.00 to $101.95 a barrel after
trading as low as $99.51. U.S crude was $2.05 higher at
$93.08 a barrel.
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