Euro Shares Trim Gains After ECB Decision

The euro fell further versus the dollar on Thursday after the European Central Bank kept interest rates on hold and traders bet that a monetary tightening cycle that kicked off five months ago has given way to a new phase of steady or even lower rates.

In London, the Bank of England also kept rates at a record low 0.5 percent for the 30th month in a row but held off increasing its asset buying programme. That allowed the British pound to rise off eight-week lows hit earlier against the dollar.

European stocks gave up some gains after the ECB announcement while U.S. equity markets were poised to open flat after the previous session's 2.8 percent gains.

Markets had already firmly priced in an end to the ECB's rate hike cycle and the single currency could in fact get a lift if ECB boss Jean-Claude Trichet -- due to speak to media at 1230 GMT -- quashes speculation of rate cuts to support economies battered by the debt crisis.

By 1150 GMT, the single currency fell to a session low of $1.4030 (EUR-). German government bonds rose after the announcement with December Bund futures (FGBLZ1) hitting a session high of 136.87 and benchmark 10-year yields (DE10YT-TWEB) easing a touch to 1.86 percent.

Traders are also keen to hear Trichet's views on the bank's buying of southern European and Irish bonds given that the ECB has been internally divided over the programme.

"The most likely scenario is that it (ECB) signals that rates will be on hold for some quarters and that the SMP (bond buy) programme will continue and will include Italian and Spanish bonds," said Intesa Sanpaolo economist Paolo Mameli.

"Considering the current level of tensions in markets at present the ECB probably wants to leave itself complete freedom to do whatever it needs to do in the future."

The pound jumped to a session high of $1.6015 after the BOE announcement while the euro (EURGBP-D4) scraped a session low of 87.74 pence.

Some investors had priced in the chance the BOE would initiate additional quantitative easing (QE) in the form of more asset purchases. Most analysts see this as likely in coming months, meaning the pound will see little respite.

"We expect to see more QE by November at the latest. Against a deteriorating domestic and international backdrop the Committee may well feel compelled to act in October," BNP Paribas analyst David Tinsley said.

Stock markets too have been on edge and while world stocks as measured by MSCI (.MIWD00000PUS) have recovered somewhat from the August correction -- the worst monthly loss since 2008, the index is 16 percent below the 2011 highs hit in May

The world index rose a marginal 0.3 percent on Thursday.

The FTSEurofirst 300 index (.FTEU3) of top European shares pared gains after the ECB rate decision. At 1153 GMT, the index was up 0.5 percent at 936.07 points.


Worries for global growth were further underscored by an OECD report that warned central banks to brace for tough times. The Organisation for Economic Cooperation and Development said on Thursday that developed countries face a sharp year-end slowdown led by a contraction in Germany. ID:nLDE7860S0

The dollar earlier firmed slightly to the yen (JPY-) and rose half a percent to a 3-1/2 month high versus the Swiss franc which has been weakening after Switzerland's central bank said this week it was determined to cap franc strength.

But the greenback will likely stay under pressure before a 1730 GMT speech by Federal

Reserve chairman Ben Bernanke that some reckon could give hints on the chances of more stimulus.

U.S. President Barack Obama is also due to announce plans for new job creation measures at 2300 GMT.

U.S. Treasuries rose slightly but were expected to stay in a range ahead of the two speeches, with 10-year yields hovering around 2 percent (US10YT-RR)

U.S. stock futures pointed to a flat opening on Wall Street. Futures for the S&P 500 (SPc1), Dow Jones (DJc1) were flat and Nasdaq 100 (NDc1) were 0.2 percent higher at 1145 GMT.