* ECB shocks with further cuts to all main interest rates
* European stock index at highest since 2008
* Euro dips under $1.30 for first time in 14 months
* Dollar index up 1 percent
(Adds latest prices, quotes)
By Michael Connor
NEW YORK, Sept 4 Stock markets rose and the euro
sank on Thursday after the European Central Bank unexpectedly
cut ultra-low interest rates even further and said it would
start buying loans and bonds next month to prop up the
continent's struggling economy.
Faced with signs of further deterioration in the euro zone's
economic prospects, the ECB cut major interest rates that were
already at record lows by another 10 basis points, putting its
deposit rate further into negative territory.
The euro zone economy flatlined in the second quarter, and
the Ukraine crisis is weighing heavily on business confidence.
A benchmark index of European shares jumped more than 1
percent to its highest level since 2008, and on Wall
Street both the Dow and the S&P 500 touched record highs.
The euro sank to a 14-month low against the dollar,
hitting $1.2957 and breaking below the key technical resistance
point of $1.30. Although the euro later pared losses to trade at
$1.2971, it was still off 1.4 percent.
"The fact that the ECB is taking aggressive action to tackle
its own maladies is likely to help risk markets in the U.S. such
as equities and hurt bond markets," said Aaron Kohli, interest
rate strategist at BNP Paribas in New York.
ECB President Mario Draghi told reporters the bank would buy
broad portfolios of simple and transparent asset-backed
securities and of euro-denominated covered bonds from October.
The ECB also cut its main refinancing rate to 0.05 percent
from 0.15 percent previously and drove the overnight deposit
rate deeper into negative territory, now charging banks 0.20
percent to park funds with it.
Spanish, French and Portuguese stocks all gained over a full
percentage point , while Germany's DAX
rose 1 percent. The FTSEurofirst 300 index of top European
shares hit its highest level since early 2008, at 1,403.63
points, before provisionally closing up 1.1 percent to 1,401.07.
Wall Street equities were also supported by U.S. economic
data that showed continuing improvement in the world's largest
economy. U.S. government bond prices fell.
The Dow Jones industrial average rose 63.77 points,
or 0.37 percent, to 17,142.05, the S&P 500 gained 9.42
points, or 0.47 percent, to 2,010.14, and the Nasdaq Composite
added 27.09 points, or 0.59 percent, to 4,599.65.
"The market likes what it heard," said Ken Polcari, director
of the NYSE floor division at O'Neil Securities in New York.
The dollar index, which measures the greenback
against six major currencies, was up nearly 1 percent to a peak
for 2014 of 83.6767.
Benchmark 10-year U.S. Treasuries traded down
10/32 of a point in price, lifting the yield to 2.448 percent.
The 30-year Treasury was off 28/32 in price, pushing the yield
up to 3.202 percent
The Federal Reserve is on the verge of halting its own
program of bond-buying, encouraged by a steady stream of
encouraging signs on jobs and growth in the United States.
But the jury is still very much out on when the Fed can
raise interest rates. The ADP jobs report on Thursday showed
private payroll growth of 204,000 for August, a bit less than
forecast by economists, but in line with expectations for
Friday's U.S. broader jobs data out of the Labor Department.
Economists are expecting payroll growth of 225,000 jobs.
(Reporting by Michael Connor in New York; Editing by Chizu
Nomiyama and Leslie Adler)