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

Thu May 2, 2013 3:38pm EDT

* ECB cuts rates 25 bps to all-time low
    * ECB "technically ready" for negative deposit rates
    * Oil rises above $102 after ECB rate cut
    * German bunds at record highs, Treasuries 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, as expected, lowered its main rate by a quarter
percentage point to 0.50 percent, its first cut in 10 months. 
But the euro fell after Mario Draghi, the bank's president, said
the ECB is "technically ready" for negative deposit rates.
 
    Draghi departed from his previous statements when he said
the ECB could cope with the consequences of cutting its deposit
rate below the current zero percent, which would effectively
charge banks to hold their money overnight, in a bid to
encourage banks to lend money and support the recession-weary
euro zone. 
    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, as a fall in new claims for jobless benefits to a
five-year low spurred optimism on the labor market, and European
shares rebounded after early declines on the ECB moves to
support growth.
    The euro slid as low as $1.3038, according to Reuters
data, and was last at $1.3056, down 0.92 percent on the day.
    "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 122.60
points, or 0.83 percent, at 14,823.55. The Standard & Poor's 500
Index was up 14.26 points, or 0.90 percent, at 1,596.96.
The Nasdaq Composite Index was up 42.56 points, or 1.29
percent, at 3,341.69. 
    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. 
    "U.S. markets are very focused on jobs, and the claims
report suggests the positive trend of hiring could be
continuing," said Weyman Gong, chief investment strategist at
Signature in Norfolk, Virginia.
    The data on unemployment claims comes a day ahead of the
Labor Department's closely watched monthly report on the jobs
market. 
    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 0.18 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, settling at 147.16, 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 1.6272 percent.
    Oil rose climbed nearly $3 a barrel to over $102 a barrel as
the ECB rate cut bolstered the supported riskier assets, 
    Brent crude settled $2.90 a barrel higher at
$102.85. U.S crude rose $2.96 a barrel to settle at
$93.99.
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