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China rate cut boosts miners

[LONDON] Shares in mining companies surged Friday after the world's second biggest economy China cut benchmark interest rates for the first time in more than two years to tackle slower growth.

Europe's leading stock markets were rising before the shock announcement - after European Central Bank President Mario Draghi said the ECB is ready to roll out new policy measures to ward off deflation in the euro area.

But the fact that the eurozone was seen as needing new stimulus weighed heavily on the euro, analysts said.

"What was initially looking like a quiet day for the financial markets... has become a lot more interesting thanks to some dovish sounding comments from European Central Bank President Mario Draghi and surprise stimulus from the People's Bank of China," said Craig Erlam, market analyst at Alpari traders.

In early afternoon trading London's benchmark FTSE 100 index was up 1.03 per cent at 6,747.06 points.

Frankfurt's DAX 30 surged 2.11 per cent to 9,684.17 points and the CAC 40 index in Paris rallied 2.19 per cent to stand at 4,327.06 compared with Thursday's closing value.

Miners were among the biggest risers in London, with Rio Tinto soaring 4.0 per cent to 2,981.5 pence. BHP Billiton and Anglo American won 3.67 per cent and 3.56 per cent respectively.

The People's Bank of China (PBoC) said it was slashing its one-year rate for deposits by 0.25 of a per centage point to 2.75 per cent and its one-year lending rate by 0.40 of a per centage point to 5.6 per cent.

In Europe, Mr Draghi told a banking congress on Friday that the ECB "will use all means available to us, within our mandate, to return inflation towards our objective - and without any undue delay".

In a bid to ward off deflation - a dangerous downward spiral of falling prices - in the single-currency bloc the ECB has cut its interest rates to all-time lows and embarked on a series of asset purchase programmes to pump liquidity into the financial system.

While on the surface falling prices seem attractive, they can in fact deter businesses and consumers from spending in the belief that goods and services will become even cheaper.

In foreign exchange on Friday, the European single currency dropped to US$1.2442 from US$1.2540 late in New York on Thursday.

The euro retreated "sharply on the back of Mr Draghi's comments as he once again sets the stage for a potential" announcement on stimulus, said Kathleen Brooks, analyst at trading group.

Elsewhere on Friday, shares in French firm Bouygues rallied after Altice, the parent company of cable operator Numericable, showed interest in its telecoms subsidiary, signalling another possible tie-up in France's mobile phone market.

Bouygues was up 3.52 per cent at 29.85 euros in Paris afternoon deals.