* Euro skids as ECB cuts rates, plans asset buying spree
* European stocks surge as short-term yields go negative
* Japanese stocks near highest since mid-2008
* Wall St turns cautious ahead of payrolls test
By Wayne Cole
SYDNEY, Sept 5 The euro was deep under water on
Friday having suffered its steepest daily fall in three years
after the European Central Bank stunned markets by cutting
interest rates and embarking on a trillion-euro asset-buying
The aggressive shift sent short-term bond yields into
negative territory in Germany, France, the Netherlands and
Austria, giving investors an overwhelming incentive to sell
euros for higher yielding assets elsewhere.
That stood in stark contrast to the United States where
upbeat data only reinforced the case for the Federal Reserve to
wind down its stimulus, driving the dollar higher and
sideswiping oil and gold in the process.
Stock prices in Europe climbed to new records in response,
though Wall Street succumbed to a bout of jitters ahead of the
U.S. payrolls report due later on Friday.
The Dow fell 0.05 percent, the S&P 500 0.15
percent and the Nasdaq 0.22 percent.
In Asia, Tokyo's Topix stalled just short of its
January peak. Chart resistance is tough as a break there would
take it to levels last seen in July 2008.
Chinese stocks extended their bull run with the CSI300
of the leading Shanghai and Shenzhen A-share listings
barrelling to their best in over eight months.
MSCI's broadest index of Asia-Pacific shares outside Japan
eased back 0.6 percent having already reached
its loftiest level since early 2008.
The euro was licking its wounds at $1.2932, after
hitting a 14-month low of $1.2920 overnight and seemed
destined to test the July 2013 trough of $1.2898.
It hit a one-month low on the yen at 135.97,
while the dollar briefly spiked to a six-year peak of 105.71 yen
before steadying at 105.35.
The single currency's capitulation came after ECB President
Mario Draghi announced a range of rate cuts and a new plan to
push money into the flagging euro zone economy.
In a news conference, Draghi said the aim was to expand the
bank's balance sheet back to the heights reached in early 2012,
which equates to a rise of around 50 percent or 1 trillion euros
in new assets.
"The Governing Council will be pumping money into the
economy while simultaneously penalizing European banks that do
not spend it," Valentin Marinov, an analyst at CitiFX.
"To the extent that at least some part of that money will
head abroad, the turbo-charged easy money will likely invigorate
euro-funded carry trades," said Marinov.
The already hugely popular carry trade is where investors
borrow at low rates in say euros or yen, to buy higher yielding
assets in other countries. The latter include Australia, Canada,
New Zealand and a whole range of emerging market nations.
"We believe also that the longer-term impact of the measures
would be to help unclog the lending channel of the Eurozone and
stimulate domestic demand," added Marinov.
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 reached ground last visited in early 2008.
Shorter-dated euro zone debt rallied hard, pushing the yield
gap between U.S. and German two-year debt
out to 60 basis points, the fattest premium since May 2007.
Across the Atlantic, data provided fresh evidence that the
U.S. economy is on track for sturdy growth in the third quarter.
Companies hired workers at a steady clip in August and services
sector activity accelerated to 6-1/2-year high.
That lifted yields on 10-year Treasuries 4 basis
points to 2.453 percent, further supporting the dollar.
Investors are now keenly waiting for the latest read on the
U.S. labour market due later Friday. Analysts expect the pace of
job creation to have picked up slightly in August, with a rise
of 225,000 nonfarm payrolls.
With the U.S. dollar flying, commodities had to cheapen to
stay attractive and gold struck a three-month low at
$1,256.90 an ounce.
Brent crude oil was off 11 cents at $101.72 a
barrel, after shedding more than a dollar overnight, while U.S.
crude eased 8 cents to $94.47.
(Editing by Shri Navaratnam)