Fall in oil, ECB cash hopes support euro, European shares

Tue Feb 28, 2012 7:55am EST
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By Richard Hubbard

LONDON (Reuters) - A fall in oil prices and the European Central Bank's looming cash boost for banks lifted the euro and shares on Wednesday, although some investors worried that the benefits of a second injection of cheap money may be short-lived.

Brent crude oil futures slipped to around $123 a barrel from highs above $125.50 late last week, ending a surge that had dampened demand for other commodities and slowed the gains in global stock prices.

Lower oil prices were also supporting U.S. equities, with stock index futures pointing to a higher open on Wall St.

Markets expect European banks to borrow about 500 billion euros ($670 billion) of the cheap funds on offer from the ECB on Wednesday, although forecasts range from 200 billion to 750 billion euros.

"The euro has priced in a cash injection of 500 billion euros and anything above 600 billion will be risk positive and push the euro higher," said Ankita Dudani, G-10 currency strategist at RBS Global Banking.

On the other hand, a take-up of less than 400 billion will hurt risk appetite and could drag the euro lower, she added.

The euro stood at $1.3444, up 0.3 percent on the day, trading not far from a near three-month peak of $1.3487 set on Friday. The U.S. dollar was unchanged against the yen at 80.50 yen, below a nine-month high of 81.66 yen hit on Monday.

European stock indexes pushed higher as bank shares gained on expectations for a good take-up of the ECB money, which is designed to improve their balance sheets and encourage lending activity to boost the wider economy.   Continued...

Bull and bear statues are pictured outside Frankfurt's stock exchange February 1, 2012. REUTERS/Alex Domanski