* Investors bet on ECB stimulus after Draghi's comments
* Yields on most euro zone govt bonds hit record lows
* Euro at 11-month low against the dollar; stocks rise
By Francesco Canepa
LONDON, Aug 25 European stocks rallied and the
euro fell to near a one-year low against the dollar on Monday as
expectations grew that the European Central Bank would loosen
ECB President Mario Draghi said late on Friday that the bank
was prepared to respond with all available tools inflation in
the euro zone dropped 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.
Draghi's comments caused yields on most euro zone government
bonds to fall to record lows and European stock markets to rise.
They overshadowed the resignation of the French government and a
weak German Ifo business sentiment survey.
"The key message is that Draghi stands ready for more action
if needed," said Franz Wenzel, the chief strategist at AXA
Investment Managers in Paris.
"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."
Yields on German, Spanish,
Italian and Portuguese 10-year bonds
all dropped to record lows.
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 trading at $1.3202, down about 0.3
percent on the day, at 1218 GMT, amid lower than usual volumes
due to a holiday in London.
A weak German business sentiment index, Ifo, also weighed on
the single currency in European trade, as it reinforced concerns
about Germany, the euro zone's biggest economy.
The euro zone's blue-chip Euro STOXX 50 index,
however, was up 1.2 percent and U.S. index futures, up between
0.3 percent and 0.4 percent, pointed to a higher start on Wall
Both Germany's DAX and France's CAC 40
gained just over 1 percent.
French Prime Minister Manuel Valls presented his
government's resignation on Monday, a day after Economy Minister
Arnaud Montebourg called for new economic policies, and
questioned neighbour Germany's "obsession" with budgetary
Some investors said that a stronger and more unified French
government might emerge, more committed to President Francois
Hollande's deficit-cutting measures.
"The new government should be more unified. Hollande has
shown he will not change course," said Francois Savary, chief
investment officer at Swiss bank Reyl.
US RATES SEEN RISING EARLIER
In contrast to the ECB, U.S. Federal Reserve Chair Janet
Yellen on Friday acknowledged the concern of some Fed officials
about sustained monetary policy stimulus, although she also
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.
The dollar index rose to 82.563, its highest since
September last year.
In commodities markets, the rising dollar pressured prices
with spot gold down 0.2 percent at $1,278.65 an ounce.
Brent crude edged above $102 a barrel on Monday amid
conflict in Ukraine and Libya, although ample supply limited the
rebound from last week's 14-month low.
(Additional reporting by Sudip Kar-Gupta, Anirban Nag and
Marius Zaharia in London; Wayne Cole in Sydney; Editing by Susan
Fenton, Larry King)