* Euro firms as bidding opens for ECB's cheap loans
* Rise in bank shares lifts European stocks
* Oil prices ease, Brent down to near $123 a barrel
By Richard Hubbard
LONDON, Feb 28 A fall in oil prices and
the European Central Bank's looming cash boost for banks lifted
the euro and shares on Wednesday, although some investors
worried that the benefits of a second injection of cheap money
may be short-lived.
Brent crude oil futures slipped to around $123 a
barrel from highs above $125.50 late last week, ending a surge
that had dampened demand for other commodities and slowed the
gains in global stock prices.
Lower oil prices were also supporting U.S. equities, with
stock index futures pointing to a higher open on Wall St.
Markets expect European banks to borrow about 500 billion
euros ($670 billion) of the cheap funds on offer from the ECB on
Wednesday, although forecasts range from 200 billion to 750
"The euro has priced in a cash injection of 500 billion
euros and anything above 600 billion will be risk positive and
push the euro higher," said Ankita Dudani, G-10 currency
strategist at RBS Global Banking.
On the other hand, a take-up of less than 400 billion will
hurt risk appetite and could drag the euro lower, she added.
The euro stood at $1.3444, up 0.3 percent on the day,
trading not far from a near three-month peak of $1.3487 set on
Friday. The U.S. dollar was unchanged against the yen at 80.50
yen, below a nine-month high of 81.66 yen hit on Monday.
European stock indexes pushed higher as bank shares gained
on expectations for a good take-up of the ECB money, which is
designed to improve their balance sheets and encourage lending
activity to boost the wider economy.
The FTSEurofirst 300 index of top European shares
was up 0.25 percent 1076.48, still just below a seven-month high
hit last week before rising oil prices unnerved investors. The
STOXX Europe 600 Banks index up 0.3 percent.
A solid session on Asian markets, helped by strong gains in
Japan's Nikkei index, which has gained about 15 percent
this year, pushed the MSCI world equity index up
0.33 percent to 331.93.
However, despite the gains in both the euro and European
shares, concerns are growing that the boost from Wednesday's ECB
lending operation may be short-lived.
The ECB tender, which follows a similar operation in
December, is widely credited with easing credit pressure across
the whole European banking system, and enabling banks to
participate more in euro zone government debt auctions, bringing
down government borrowing costs.
But Ian Stannard, head of European FX strategy at Morgan
Stanley, said renewed selling of the euro could emerge soon as
the economic picture was still weak within the euro zone, while
the flood of cheap public money reduces the need for private
capital inflows into the euro area.
"From a flows perspective, the use of the ECB facilities is
basically squeezing out foreign investor capital," he said.
"Banks are using the funding from the ECB for their
refunding purposes when normally they would have had to go out
and attract foreign investor capital, so the euro zone will not
be seeing those inflows."
Share markets have also rallied since the ECB's first loan
tender and market players expect Wednesday's extra burst of cash
to support more buying initially, but maybe not for long.
"It adds some liquidity to the (equity) market and there are
lots of strategists that think this will push stocks higher,"
Koen De Leus, strategist at KBC Securities said.
"But it is just a sign that banks still cannot go to the
interbanking market to get loans, and it is probably the last
operation for a while. I would not get my hopes up on a strong
rally. The market could still go down 5-10 percent."
Offsetting these concerns on Wednesday, however, were signs
that oil prices have ended a surge linked to concerns over
supply from the Middle East.
Front-month Brent was down $1.17 to $123 a barrel,
after also losing more than $1 a barrel on Monday. U.S. crude
fell 46 cents to $108.10 a barrel, after ending seven
straight days of gains in the previous session.
Gold edged up to $1,776 an ounce after two straight
sessions of losses, gaining in line with other major assets on
hopes for the ECB loan offer, with the weaker U.S dollar against
the euro lending some extra support.
In debt markets Italy's 10-year borrowing costs fell below 6
percent to the lowest level since last August at an auction of
fresh debt in a clear sign of how the flood of ECB money into
banks is helping to ease the region's debt crisis.
The successful sale left Italy at the half-way mark of a
major refinancing programme in the first few months of the year,
easing concerns in debt markets that it would struggle to
refinance all its maturing debts.