(MENAFN- AFP) A surprise rate cut and major policy announcement by the European Central Bank pushed the euro down sharply and boosted European and US stocks on Thursday.
The euro fell to the lowest levels for more than a year against the dollar, down to 1.3026 after the ECB caught markets off guard by cutting its key interest rates to ward off deflation.
It also made a major announcement that it would launch a programme to buy asset-backed securities.
''The ECB has just shocked the market," said Jameel Ahmad, Chief Market Analyst for FXTM.
"This surprising move does showcase how eager the ECB are to encourage banks to lend again, and they clearly see negative deposit rates as an alternative way to improve inflation levels," he added.
Analysts had expected that the ECB would lay out the prospects for some form of quantitative easing, meaning injections of substantial amounts of cash into the economy.
Analysts had warned that a decision not to announce any measures to ward off deflation would "send shockwaves through equities globally."
In the event, the bank's announcements pushed up stocks just as they pulled down the euro.
Speaking after the rate cut, ECB president Mario Draghi said in a landmark policy announcement that the ECB would buy "a broad portfolio of simple and transparent asset-backed securities (ABSs)."
This is a technique for buying certain types of assets out of bank balance sheets and replacing them with cash, in the hope it will be passed on in the form of loans.
By early afternoon, the Paris CAC 40 was showing big gains from Wednesday's closing level of 1.66 percent to 4,495.06 points.
London's benchmark FTSE 100 index added 0.22 percent to 6,888.69 points, and Frankfurt's DAX 30 index was down 0.33 percent to 9,594.33, but this was stronger than the level of 9,567.84 before the announcement.
US stocks followed European equity markets and opened higher.
- QE or ABS -
Five minutes into trading, the Dow Jones Industrial Average gained 31.18 points (0.18 percent) to 17,109.46.
The broad-based S&P 500 rose 3.24 (0.16 percent) to 2,003.96, while the tech-rich Nasdaq Composite Index advanced 10.24 (0.22 percent) to 4,582.81.
Pressure had increased on the ECB to act after eurozone inflation slowed to just 0.3 percent in August from 0.4 percent the previous month.
The latest data puts inflation worryingly below the central bank's target of just under 2.0 percent and brings the single currency area perilously close to deflation.
This is a climate of falling prices which can cause businesses and consumers to delay purchases, further reducing demand and prices and pushing up unemployment.
But there is resistance to responding to this risk with quantitative easing (QE) because it would entail the ECB buying up sovereign bonds, which many critics - including the German central bank or Bundesbank - view as monetary financing, or printing money to pay a country's debt.
- Standard Life shares surge -
In a hectic day of financial markets, the euro had begun to fall even before the ECB announcement.
Sterling rose to 79.32 pence to the euro, but fell to $1.6438, having reached $1,6395 - the lowest level since February 11.
The Swiss franc edged up against the euro to 1.2056 francs to the euro, having reached 1.2044 to the euro, the highest rate since the end of November 2012. But it was down at 0.9256 francs to the dollar.
The yuan ended at 6.1386 to the dollar, the highest closing level since March 13, from 6.1414 late on Wednesday.
The price of gold was at $1.271 at the morning fixing, from $1,265.50 on Wednesday on the London Bullion Market.
In Paris, France was able to borrow at a new record low rate when it issued 10-year bonds. The country raised 4.297 billion euros ($5.7 billion) at 1.32 percent, down from the last record low rate on July 3 of 1.77 percent.
In company news, the top gainer in London was Standard Life after agreeing to sell its Canadian activities to Manulife of Canada for £2.2 billion ($3.6 billion, 2.8 billion euros).
Standard Life shares showed a gain of 8.13 percent to 417.5 pence.
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