GLOBAL MARKETS-Euro, peripheral bond yields fall on ECB easing debate

Thu Mar 27, 2014 9:04am EDT

(Updates)

By Natsuko Waki

LONDON, March 27 (Reuters) - The euro fell against the dollar on Thursday and peripheral European government bond yields hit their lowest levels in years as speculation grew that the European Central Bank will ease monetary policy soon.

U.S. Treasury yields rose, U.S. stock futures pointed to a weaker open and European shares slipped after data showed the U.S. economy expanded at 2.6 percent in the fourth quarter, weaker than a consensus estimate for 2.7 percent.

Emerging market stocks were steady while Ukraine's sovereign government bonds rose after the International Monetary Fund said it had agreed a $14-18 billion bailout for the country.

In Europe, the focus was on whether the euro zone's central bank might act to bolster a slow economic recovery.

ECB Governing Council member Jens Weidmann said earlier this week negative interest rates were an option to temper euro strength, and that buying loans and other assets from banks to support the bloc was not out of the question.

The comments surprised investors, given the long-held resistance to quantitative easing of the powerful German central bank headed by Weidmann.

ECB President Mario Draghi said on the same day that the ECB stood ready to act if inflation slipped lower than it expected.

"It's obvious that the comments from the ECB have been fuelling expectations of the ECB doing more going forward ... and the fact that they are coming from Weidmann gives a bit more weight," said Jussi Hiljanen, chief fixed income strategist at SEB in Stockholm.

The euro fell 0.15 percent to $1.3759 and hit a three-week low against the pound. The dollar meanwhile rose 0.1 percent against a basket of currencies.

Spanish 10-year yields hit a new eight-year low of 3.271 percent and Italian yields an 8-1/2 year low of 3.327 percent, while Portuguese yields shrank fell to a four-year low of 4.091 percent.

All of these countries were at the leading edge of the euro zone debt crisis before the region's fortunes began to improve. Italy's 10-year government bonds are the best performing asset so far this year after gold and commodities. (link.reuters.com/pat75v)

The MSCI world equity index was steady on the day, with European stocks were down around 0.2 percent.

Technology shares sharply fell on Wall Street on Wednesday, led by Facebook and King Digital Entertainment, the maker of the wildly popular "Candy Crush Saga" game.

King's stock fell 15.6 percent to close at $19 in its trading debut on Wednesday after the initial public offering valued the company at about $6 billion.

In emerging markets, stocks were steady while currencies held near multi-week highs against the dollar, buoyed by Chinese stimulus hopes and stable U.S. yields.

Ukraine's sovereign government bonds rose 1-2 cents on the dollar. The IMF hopes the aid package will unlock further credits to reach a total of $27 billion over the next two years, helping Ukraine meet debt payments after the upheaval which culminated in Russia annexing the Crimea region.

U.S. crude oil rose 0.8 percent to $101.06 a barrel. (Additional reporting by Marius Zaharia; Editing by Catherine Evans)

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