Surprise China Move Lifts European Shares

Stocks and the euro recovered early losses to rise on Wednesday after China surprised with its first cut in banks' reserve requirements for nearly three years, moving into easing mode as Beijing looks to soften the country's economic slowdown.

The move overshadowed an early reversal in risk appetite after a wide-ranging cut in financial sector ratings added to worries about the fallout of the euro zone's debt problems as time runs out for policymakers to quell the two-year-old crisis.

A deal by euro zone finance ministers' to boost the firepower of the regional bailout fund, agreed late Tuesday, was seen as inadequate, and Standard & Poor's downgrade of a number of leading banks fuelled the early selloff.

At 1117 GMT, the FTSEurofirst 300 index of leading European shares was up 0.9 percent at 956.28 points, after earlier being as low as 936.66. U.S. stock index futures also pointed to a higher open on Wall Street.

The China move, which lowers the reserve ratio for China's biggest banks to 21 percent, to free up cash for small firms crimped by credit market strains, ironically came just after Chinese stocks posted their biggest 1-day slide since August on the belief it was not about to ease monetary policy.

"It's a surprising move -- the market was not expecting the central bank to (cut RRR) so fast," Shi Chenyu, economist with the investment banking unit of Industrial and Commerical Bank of China said. "The move sends a clear message that the central bank is ready to relax its policy stance.

The euro also rose on the news, while Bund futures pared gains before recovering to trade just up on the day.