GLOBAL MARKETS-Unchanged ECB, euro zone PMIs halt stock rally

Reuters - UK Focus

By Jamie McGeever

LONDON, April 3 (Reuters) - Slightly slower growth in eurozone business activity last month and unchanged interest rateson Thursday halted this week's European stock market rally inits tracks.

Investor (Other OTC: IVSBF - news) appetite for risk showed up in some areas, however,with 10-year Greek government borrowing costs falling below 6percent for the first time in four years ahead of the country'sexpected return to the bond market later this month.

Seventy of 72 economists polled by Reuters correctlypredicted the European Central Bank would keep its main interestrate on hold at a record low 0.25 percent.

But with inflation at a four-year low of 0.5 percent andmany observers saying the door is open to further easing, thedecision not to act pushed stocks into negative territory andlifted the euro from its low of the day.

The focus now shifts to a news conference with ECB PresidentMario Draghi due to start at 1230 GMT, where markets will watchfor any comments that may indicate possible action ahead.

Signs of a post-winter improvement in the U.S. economy,expectations Beijing will take steps to boost the Chineseeconomy and a reduction in emerging market volatility had liftedglobal stocks and core government bond yields this week.

On Wednesday, the S&P 500 hit a record high and Asianstocks a four-month peak, while benchmark U.S. 10-year Treasuryyields hit a one-month high and Greek 10-year yields posted their biggest one-day fall in two months.

"Risk assets in Europe are broadly flat. The main news inEurope was the PMI reports (and) the final euro area indices forMarch were a tad lower than expected," said Barclays (LSE: BARC.L - news) economistsin a note to clients.

At 1200 GMT, most of Europe's major indices were lower onthe day. The FTSE Eurofirst 300 index of leading European shareswas down 0.2 percent at 1,340 points, Germany's DAX was down a quarter of one percent at 9,600 points andFrance's CAC 40 was off a fifth of one percent at 4,422.

Britain's FTSE 100 index was flat at 6,658 points.


Overnight, MSCI (NYSE: MSCI - news) 's broadest index of Asia-Pacific sharesoutside Japan added 0.1 percent, brushing a newfour-month high, and Japan's Nikkei jumped 1.2 percentto a three-week peak after China cut taxes for small firms andupdated infrastructure spending plans.

In bond markets, 10-year German government bond yieldsinched up a basis point to 1.63 percent and theirGreek equivalent slipped to a fresh four-year low of 6.16percent.

Greece lined up a group of banks on Thursday to manage itsfirst new bond sale since the country restructured its debt twoyears ago. The transaction, expected later this month, will markone of the fastest-ever comebacks for a defaulted sovereign.

France and Spain sold a combined 13.1 billion euros of bondson Thursday in auctions that drew strong demand from investors.

In currencies, the yen remained on the back foot as itssafe-haven appeal continued to fade. The dollar traded at 103.95yen, after briefly touching a 10-week high of 104.075.

The euro was marginally higher on the day at $1.3775against the dollar, recovering a quarter of a cent after the ECBkept rates on hold.

Juergen Michels, chief economist at BayernLB, said Draghiwas "likely to give a very strong verbal message that (ECBpolicymakers) ...are willing to take further action on both therate side as well as on the side of quantitative easing (QE)."

Sterling slid 0.2 percent to $1.6590 as a fall in UKservice sector growth to an eight-month low in March offsetearlier remarks from Bank of England governor Mark Carney thatinterest rates could rise before May next year.

In commodities markets, gold fell 0.5 percent to$1,283 an ounce, three-month copper on the London Metal Exchange was down 1 percent at $6,607.00 a tonne, and Brent oilwas up 0.4 percent at $105.18 a barrel.

Investors are also looking ahead to U.S. employment data forMarch on Friday. Private-sector jobs and factory orders data onWednesday strengthened expectations of another solid report. (Reporting by Jamie McGeever; Editing by Toby Chopra, JohnStonestreet)

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