Yields rise, euro dips as ECB trims bond purchases

Thu Dec 8, 2016 4:34pm EST
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By Sinead Carew

NEW YORK (Reuters) - Bond yields rose and the euro dipped on Thursday after the European Central Bank said it would prolong its bond purchase program but surprised investors by scaling back on how much it will spend each month. Wall Street stocks closed higher.

The euro saw its biggest one-day percentage drop against the dollar since June after the ECB said it would reduce its bond buying program to 60 billion euros a month from 80 billion, but extended it from April to December 2017.

ECB President Mario Draghi said it was not an outright winding-down of quantitative easing (QE) but this did not completely reassure fixed income investors.

"Currencies are reacting more to the extension and bonds are focused on the taper," said Frances Donald, senior economist at Manulife Asset Management in Boston. "The total announcement today is more easing than expected. It may take more time for the bond market to recognize that."

The euro was last down 1.3 percent at $1.0614 after surging to $1.0875 after the ECB's statement. The dollar rose 0.9 percent against a basket of major currencies after the ECB news and ahead of next week's Federal Reserve meeting at which a rate hike is expected.

"It didn't help the euro was at the highs; we had a clearing of euro shorts after the Italian referendum," said Vassili Serebriakov, FX strategist at Credit Agricole in New York referring to an Italian vote against constitutional reform days before the ECB meeting.

The S&P 500 benchmark stock index rose, with its biggest boost from financials, followed by the materials sector.

"This is just a continued melt-up post-election. The path of least resistance has been higher," said Jason Ware, chief investment officer with Albion Financial Group in Salt Lake City. "Seasonally, you have a strong period. You have money coming out of the bond market ... so that money has to go somewhere."   Continued...

Traders work on the floor of the New York Stock Exchange (NYSE) in New York City, U.S., December 5, 2016.  REUTERS/Brendan McDermid