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Euro hits 11-year low, stocks climb after ECB

Friday, March 6, 2015 - 07:29
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The euro slumped to an 11-year-low against the dollar and stocks finished up on Thursday after the European Central Bank said it will begin a 1.1-trillion-euro bond buying programme next week.

[LONDON] The euro slumped to an 11-year-low against the dollar and stocks finished up on Thursday after the European Central Bank said it will begin a 1.1-trillion-euro bond buying programme next week.

The euro sank to US$1.0988 - Its weakest level since September 2003 - after trading at US$1.1080 late in New York on Wednesday.

The euro's further tumble came after ECB chief Mario Draghi said the bank will start buying government debt in its new quantitative easing programme on Monday.

"Following up on our decisions of January 22, we will, on March 9, start purchasing euro-denominated public sector securities in the secondary market," Draghi told a news conference, adding that "we have already seen a significant number of positive effects from these monetary policy decisions."

Mr Draghi also told a news conference that the central bank had increased its euro area-wide growth forecast to 1.5 per cent in 2015, 1.9 per cent in 2016 and 2.1 per cent in 2017.

At the same time, inflation was set to come in at zero this year, lower than previously projected, but would pick up to 1.5 per cent next year and to 1.8 per cent in 2017, Mr Draghi said.

Other mixed signals included eurozone jobless rates declining from 11.3 per cent to 11.2 per cent in January, while US jobless figures modestly yet unexpectedly increased.

"Investors continue to trade cautiously as we approach the business end to the week," said Craig Erlam, senior market analyst at broker Oanda.

At closing Thursday, London's benchmark FTSE 100 index climbed 0.61 per cent to 6,961.14 points, as the Bank of England decided to hold interest rates at record lows.

Frankfurt's DAX 30 closed one per cent higher to 11,449.30 points, and the CAC 40 index in Paris won 0.94 per cent to 4,963.51 points compared with Wednesday's close.

"Whilst the eurozone indices didn't lose their morning gains, neither did they explode and build on the growth they had seen before the (ECB) conference began," says Spreadex analyst Connor Campbell in a market report.

"It appears that the very existence of the ECB conference this afternoon did more for the markets than its content.

What did proceed as expected was the demise of the euro; the currency hit even fresher 11 year lows during Mr Draghi's conference, and can expect to lose more once the bond buying begins next week." US stocks opened higher ending a two-day downturn Thursday, with AbbVie's US$21 billion takeover of cancer drug developer Pharmacyclics giving a charge to buyers.

The Dow Jones Industrial Average was up 0.17 per cent at 18,127.76 in late-morning trading.

The broad-based S&P 500 slipped 0.44 per cent to 2,098.53, while the tech-rich Nasdaq Composite rose 0.25 per cent to 4,979.36.

Outlook for coming days may be hinged to market expectations of how the ECB's bond buying effort will play out.

"Central banks have been the driving force behind the booming stock markets over the past few years and now it is the ECB's turn to flood the financial system with money," said David Madden, market analyst at IG trading group.

The massive central bank purchases reduce returns on bonds for investors, who instead turn to stocks.

Focus was also on China on Thursday, which lowered its 2015 economic growth target to "around seven per cent", scaling down expectations in the face of "formidable" difficulties for the world's second-largest economy after its decades-long boom.

The figure announced by Premier Li Keqiang is the lowest since a similar goal in 2004 and comes after China's gross domestic product (GDP) expanded 7.4 per cent in 2014, the slowest pace in 24 years. Last year's target was "about 7.5 per cent".

The cut was widely expected by economists and reflects the reality of a multi-year slowdown in the Asian giant that has seen it come off regular annual double-digit expansions.

AFP