* ECB shocks with further cuts to main interest rates
* Wall St rally fizzles as energy shares drag
* European stock index at highest since 2008
* Euro dips under $1.30 in biggest fall since 2011
(Adds late Wall St selloff, late prices and quotes)
By Michael Connor
NEW YORK, Sept 4 The euro sank on Thursday after
the European Central Bank unexpectedly cut its ultra-low
interest rates even further and said it would start buying loans
and bonds next month to prop up the continent's struggling
The move gave the euro, used by 18 nations, its biggest
single-day drop since 2011, while boosting the dollar the most
against major currencies in more than a year.
Stock prices in Europe climbed to new records, and Wall
Street had an early ECB-driven rally, which included new
intraday record highs for prominent equity indices. But a late
sell-off in energy shares and investor anxieties about U.S. jobs
data to be issued on Friday spurred losses for the day.
The Dow Jones industrial average fell 8.7 points, or
0.05 percent, to 17,069.58, the S&P 500 lost 3.07 points,
or 0.15 percent, to 1,997.65, and the Nasdaq Composite
dropped 10.28 points, or 0.22 percent, to 4,562.29.
The Standard & Poor's energy industry index ended
off 1.29 percent as oil prices dropped.
"Energy had some pretty dramatic moves today, which goes hand
in hand with the strengthening of the U.S. dollar," said Kim
Forrest, senior equity research analyst at Fort Pitt Capital
Group in Pittsburgh.
Faced with signs of further deterioration in the euro zone
economy, the ECB cut 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.
The euro hit a 14-month low against the dollar at
$1.2921, breaking below the key technical resistance point of
Although the euro later pared losses to trade at $1.2944, it
was still off 1.55 percent in what was the currency's biggest
one-day percentage decline since Nov. 8, 2011.
An 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 before pulling
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 closing up 1.1 percent to 1,400.99.
The dollar index, which measures the greenback
against six major currencies, touched a 2014 high of 83.865, the
biggest percentage gain since July 5, 2013. The index was last
up 1.1 percent.
The stronger dollar pushed oil prices lower. U.S. crude
for October delivery fell $1 to settle at $94.54 a
barrel, while Brent fell 85 cents to settle at $101.89 a
Benchmark 10-year U.S. Treasuries traded down
12/32 of a point in price, lifting the yield to 2.453 percent.
The Federal Reserve is on the verge of halting its own
program of bond-buying, encouraged by a steady stream of
stronger data on jobs and growth in the United States. But the
jury is still out on when the Fed can raise interest rates.
(Reporting by Michael Connor in New York; Editing by Leslie
Adler, Dan Grebler and Chizu Nomiyama)