GLOBAL MARKETS-ECB cut lifts stocks, but euro slumps on Draghi

Thu May 2, 2013 1:28pm EDT

* ECB cuts rates 25 bps to all-time low
    * Euro tumbles as ECB 'technically ready' for negative
deposit rates
    * Oil rises above $100 after ECB rate cut
    * German bunds set record highs, Treasuries trade mostly
flat


    By Herbert Lash
    NEW YORK, May 2 (Reuters) - Global equity markets rallied
but 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.
    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 poised to set an all-time
high, and European shares rebounded after early 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 $1.3066, down 0.84 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 124.68
points, or 0.85 percent, at 14,825.63. The Standard & Poor's 500
Index was up 15.52 points, or 0.98 percent, at 1,598.22.
The Nasdaq Composite Index was up 45.44 points, or 1.38
percent, at 3,344.57. 
    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 0.42
percent to close at 1,206.53, near its intraday high this year
of 1,209.09 reached on Tuesday.
    MSCI's all-country world equity index also
pared losses and rose 0.19 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 traded near break-even despite the
lower jobless claims, with the benchmark 10-year note down 1/32
in price to yield 1.634 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 $1.86 to $101.81 a barrel after
trading as low as $99.51. U.S crude was $2.00 higher at
$93.03 a barrel.
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