GLOBAL MARKETS-Euro falls, Bunds rally after ECB rate decision

LONDON, June 5 Thu Jun 5, 2014 8:18am EDT

LONDON, June 5 (Reuters) - The euro fell to a four-month low and German Bund futures rallied on Thursday after the European Central Bank cut interest rates and said further policy measures would be announced later in the day.

The ECB's initial announcement of a cut in its interest rates, including bringing its deposit rate below zero for the first time, triggered volatile market trading before the bank said in a statement more action would be forthcoming.

ECB President Mario Draghi is due to hold a news conference at 1230 GMT.

The rate cuts were widely expected and many were also looking for the ECB to offer banks long-term loans linked to further lending.

"His (Draghi's) decision on the interest rates was as expected. The key thing now will be to see what extra measures he comes up with. I don't see any QE in terms of the purchasing of public debt. I do think he may come up with measures for ABS or an LTRO," said Francois Savary, chief investment officer at Swiss bank Reyl.

The euro traded down a third of a percent at $1.3666 after the announcement of the further measures.

Bund futures hit a high for the day of 146.39, up as much as 46 ticks. Euribor short-term interest rate futures <0#FEI:> rose 0.5-4 ticks from levels seen before the decision, pushing implied rates down.

The euro zone's Euro STOXX 50 share index extended gains to trade 0.8 percent higher on the day, hitting its highest level since September 2008 at 3,266.21 points.

British government bond futures rallied to a session high, and 10-year gilt yields fell, narrowing their spread over Bunds by 2 basis points after the decision to just below 122 basis points, their lowest since June 2.

The Bank of England earlier left interest rates unchanged. (Reporting by Patrick Graham, Eemelia Sithole-Matarise, John Geddie, David Milliken, Atul Prakash and Sudip Kar-Gupta)