GLOBAL MARKETS-Euro buoyant as European Central Bank hold rates

Thu May 8, 2014 8:35am EDT

* ECB, BoE hold rates, focus turns to 1230 ECB press conference

* Shares, bonds hold ground as Yellen bolsters supportive Fed view

* Separatists ignore Putin calls to postpone Ukraine secession vote

* China exports, imports beat forecast

By Marc Jones

LONDON, May 8 (Reuters) - The euro was back at a two-month high on Thursday as the European Central Bank resisted calls for a rate cut to cool the currency.

The ECB left euro zone interest rates at record low 0.25 percent at a meeting in Brussels, leaving focus on a 1230 GMT news conference with President Mario Draghi to see if the bank is any closer to agreeing alternative options to tackle the bloc's uncomfortably low inflation.

Signs the economy is picking up and the fact government borrowing costs are still falling has given the bank some breathing space, but the worry is it could sour again if the euro keeps on rising and snuffs out the fledgling recovery.

The euro had climbed in the run-up to the decision and confirmation that there was to be no cut this time around lifted it to $1.3952 to match a two-month peak it reached earlier in the week.

Traders said it could quickly fall back towards support just under $1.3800 in the event of any policy surprises, though any doubts the ECB was preparing for some form of easing in the coming months could send it upwards again.

"Our view is if there is going to be any policy easing it will be in June when they will have new economic forecasts," Bank of Tokyo Mitsubishi foreign exchange strategist Lee Hardman said.

"If (ECB President) Mario Draghi doesn't escalate the concern over the strength of the euro at the press conference then the euro will rise, probably above $1.40."

Share and bond markets were also on the front foot, boosted by supportive comments from U.S. Federal Reserve chief Janet Yellen on Wednesday and signs that Russia is trying to avoid a full-blown conflict in Ukraine.

Upbeat Chinese trade data overnight meanwhile provided some signs of stabilisation in the world's second-largest economy.

As midday approached, the FTSEurofirst 300 index of top European shares was up 0.3 percent at 1,348 points, as the FTSE in London, the CAC 40 in Paris and Frankfurt's Dax gained similar amounts.

A shade of caution had seeped back in earlier after pro-Russian separatists in eastern Ukraine ignored a public call by Russian President Vladimir Putin to postpone a referendum on independence.

Having rallied hard in recent days on hopes the crisis may be settling down, Russian stocks came to a shuddering halt, while the rouble fell back from a 2-1/2 month high against the dollar.

FED QUARTET

Mario Draghi is under pressure from countries like France to ensure the euro doesn't strengthen so much that it derails the bloc's economic revival.

Any lingering hopes for an immediate easing by the bank were dealt a blow by German Finance Minister Wolfgang Schaeuble, who said central banks now needed to pare back their money printing to avoid inflating fresh asset bubbles.

Wall Street futures pointed to a near flat start in New York later. Earlier in Asia, Tokyo's Nikkei share average had ended up 0.9 percent, while MSCI's broadest index of Asia-Pacific shares outside Japan rose 0.5 percent to climb away from five-week low.

It came after China's exports and imports returned to slight growth in April after a surprise fall last month, offering signs that Beijing's use of targeted policy measures to underpin growth may be starting to stabilise the economy.

Mainland Chinese shares rose 0.8 percent, also helped by bets on further stimulus measures after the central bank warned of a deepening economic slowdown.

Sentiment had already been buoyed after comments on the "considerable slack" in the U.S. labour market from Yellen had bolstered the view the Fed would stay in supportive mode for plenty of time yet.

She, along with a quartet of fellow Fed policymakers, will speak later in the day in the United States.

The 10-year U.S. Treasury yield edged higher in European trading but remained not far off Monday's three-month low of 2.572 percent. German and other core euro zone bonds moved in tandem, with Bunds at 1.480 percent.

The pound held near a five-year high against the dollar on rising expectations the Bank of England, which earlier had also held rates steady, will tighten policy before the Fed, probably early next year. It last stood at $1.6941 versus this week's high of $1.6997.

The Australian dollar climbed 0.6 percent to $0.9382 after local data showed that employment had risen more than expected in April.

With risk sentiment improving slightly, the yen stepped back from a three-week high to 101.70 yen on the dollar while gold and oil steadied at $1,292.60 per ounce and $107.76 a barrel, respectively. (Editing by Catherine Evans and Nick Zieminski)

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