Global stocks rise, euro falls after ECB decision

LONDON (Reuters) - The euro fell and shares and government bonds rallied on Thursday as the European Central Bank poured cold water on speculation of further aggressive interest rate hikes after raising them as expected.

Stocks also recovered sharply from a global sell-off, which knocked world shares to a five-month low earlier, after U.S. jobs came largely in line with expectations.

The ECB became the first G7 central bank to raise interest rates since the credit crisis erupted last August, increasing the euro zone's benchmark cost of borrowing to 4.25 percent.

However, the euro fell broadly as investors scaled back further interest rate hikes after ECB President Jean-Claude Trichet told a news conference he had no bias on monetary policy.

"For now Trichet seems to be drawing a line under today's move," said Philip Shaw, chief economist at Investec.

"Things might change going forward, but for now there's nothing to suggest the ECB has an itchy trigger-finger."

The FTSEurofirst 300 index .FTEU3 erased early losses to rise 0.2 percent, having fallen to a level not seen since July 2005 earlier. MSCI's main world equity index .MIWD00000PUS fell 0.5 percent to its lowest since January 23.

JOBS NON-SURPRISE

Data showed U.S. employers cut workers from their payrolls for the sixth straight month in June for the country's longest losing streak since 2002, with 62,000 jobs lost from non-farm payrolls last month.

"The market was geared up for weak numbers and so this isn't a big surprise relative to the whisper number," said Carl Lantz, interest rate strategist at Credit Suisse in New York.

U.S. stock futures were indicating a firmer open on main indexes later.

In the currency market, the euro fell around 1-1/2 U.S. cents to hit $1.5743, having risen to a 2-1/2 month high earlier.

Earlier, a weaker dollar -- which policymakers increasingly worry is inflationary -- pushed crude oil to fresh record highs above $145 a barrel.

A senior Japanese government official said leaders from Group of Eight rich nations will discuss concerns that a weak U.S. dollar is a contributing factor to oil prices when they gather next week in Japan.

Emerging sovereign spreads widened 1 basis point while emerging stocks .MSCIEF fell 1.7 percent.

The September Bund future rose 27 ticks while interest rate futures also rose. Investors are expecting euro zone rates to stand at around 4.5 percent by year-end.

Gold fell to $932.50 an ounce.