* Euro falls to near 1-year low as ECB opens door to
* Euro zone stocks, bonds rise
* Yen also weakens on dovish Kuroda
By Francesco Canepa
LONDON, Aug 25 The euro fell to a near one-year
low against the dollar and euro zone stocks and bonds rallied on
Monday as investors positioned for rising chances of further
policy easing by the European Central Bank.
ECB President Mario Draghi said late on Friday that the bank
was prepared to respond with all its available tools should
inflation in the euro zone drop further.
Investors speculated this meant the ECB was more likely to
embark on an asset purchase programme, or quantitative easing,
or adopt other stimulus measures in coming months which would
weigh on the euro and boost assets such as stocks and bonds.
"The key message is that Draghi stands ready for more action
if needed," Franz Wenzel, chief strategist at AXA Investment
Managers in Paris, said.
"Whether they're going to do quantitative easing remains to
be seen but we're fairly confident that the financial engineers
at the ECB will find other tools. At this juncture, we don't
exclude quantitative easing at the end of this year."
A weak German business sentiment index, Ifo, also added
pressure on the euro in European trade, as it reinforced
concerns about Germany, the euro zone's biggest economy.
The euro skidded to $1.3185 in early Asian trade, its
lowest since September 2013, from around $1.3246 late in New
York on Friday. It was last trading at $1.3190, down about 0.3
percent on the day, amid lower than usual volumes due to a
holiday in London.
The euro zone's blue-chip Euro STOXX 50 index
was up 1.2 percent to 3,135.38 points after climbing to a
three-week high in early deals. Both Germany's DAX and
France's CAC 40 gained 1.2 percent.
The MSCI All-Country World index was up 0.1
percent at 429.03 points.
Spanish and Italian 10-year
yields fell 8 bps to 2.31 percent and 2.51 percent,
respectively, while Portuguese yields fell 14 bps
to 3.12 percent.
"The ... market has interpreted Draghi's statement as
meaning that broad-based asset purchases, or quantitative
easing, has now become more likely," said Lutz Karpowitz,
currency strategist at Commerzbank.
The Ifo business climate index dropped for a fourth straight
month in August and the Ifo Institute said it was likely to cut
its 2014 growth forecast for Germany to 1.5 percent from 2
Also sounding dovish was Bank of Japan Governor Haruhiko
Kuroda who vowed over the weekend to press ahead with aggressive
monetary easing for as long as needed to convince the public
that deflation was dead and buried.
Kuroda's pledges of policy stimulus weighed on the yen
, which was down 0.1 percent against the dollar.
US RATES SEEN RISING EARLIER
In contrast, U.S. Federal Reserve Chair Janet Yellen on
Friday gave a nod to the concerns of some Fed officials about
the sustained level of monetary policy stimulus, even as she
stressed the need to move cautiously on raising rates.
As a result, Fed funds futures fell back <0#FF:> as the
market priced in the risk of an earlier rise in interest rates,
while the dollar index rose to 82.563, its highest since
September last year.
U.S. T-note futures were flat at 125-57/64, with cash
10-year yields trading at 2.41 percent.
In commodities markets, the rising dollar pressured prices
with spot gold hovering near its lowest in two months at
Brent crude dipped towards $102 a barrel on Monday as ample
supply and a stronger U.S. dollar continued to pressure oil
(Additional reporting by Anirban Nag and Marius Zaharia in
London; Wayne Cole in Sydney; Editing by Susan Fenton)