* Euro skids as ECB cuts rates, plans asset-buying spree
* Japanese shares near highest since mid-2008
* European stocks, Wall St turn cautious ahead of payrolls
By Wayne Cole
SYDNEY, Sept 5 The euro was deep under water on
Friday, having suffered its steepest fall in three years after
the European Central Bank stunned markets by cutting interest
rates and embarking on a trillion-euro asset-buying binge.
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.
After surging on Thursday, European share markets looked set
to start in a cautious mood as the U.S. payrolls report loomed
large later in the session. Financial spreadbetters tipped
losses of 0.1 percent to 0.2 percent for the FTSE 100,
DAX and CAC 40.
In Asia, Japan'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 Dow had eased 0.05 percent, the S&P 500
lost 0.15 percent and the Nasdaq 0.22 percent.
The euro was licking its wounds at $1.2934, after
hitting a 14-month low of $1.2920 overnight, and it
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 penalising European banks that do
not spend it," said 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 euros or yen, for example, to buy
higher-yielding assets in other countries. The latter include
Australia, Canada, New Zealand and a whole range of emerging
"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.
Shorter-dated eurozone debt rallied hard after the ECB move,
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 was on track for sturdy growth in the third
quarter. Companies hired workers at a steady clip in August and
service sector activity accelerated to 6-1/2-year high.
That lifted yields on 10-year Treasuries by 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 on Friday. Analysts expect the pace
of job creation to have picked up slightly in August, with a
rise of 225,000 jobs on 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 before clambering back to $1,264.30.
Brent crude oil was off 4 cents at $101.79 a barrel
after shedding more than a dollar overnight, while U.S. crude
edged up 4 cents to $94.49.
(Editing by Shri Navaratnam and Alan Raybould)