European shares enjoy post-ECB cash boost

Thu Mar 1, 2012 7:45am EST
 
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By Richard Hubbard

LONDON (Reuters) - European shares and the euro reversed early losses on Thursday as the impact of the latest massive cash injection by the European Central Bank lifted sentiment, overwhelming fears that further U.S. monetary easing could be on hold.

Data showing new factory orders for Asia's manufacturing powerhouses perked up a bit in February, easing some concerns about the global economic slowdown.

The FTSE Eurofirst .FTEU3 index of top European shares gained 0.3 percent to 1,078.92 points, bouncing back from a session low of 1,071.58. Banks led the recovery, rising more than 1 percent .

However, the euro, which opened down near one-week lows after comments by Fed Chairman Ben Bernanke stopped short of promising further bond purchases to stimulate the economy, and was up just 0.1 percent to $1.3340.

"Some of the euro's underperformance, especially against the commodity currencies, is here to stay. Any rebound feels like it will be sold into unless there is a sustained improvement in euro zone fundamentals," said Valentin Marinov, currency strategist at Citi.

The European Central Bank's second and massive 529.5 billion euros ($708 billion) injection of money into the region's banking system, and Bernanke's comments later on the state of the U.S. recovery, along with improving economic data in Asia are pushing back expectations for further monetary easing.

"We now expect only one more rate reduction of 25 basis point from the ECB in the second quarter of 2012, and view outright asset purchases as a backstop if the financial and sovereign crisis unexpectedly worsens again," Elga Bartsch, head of European Economics at Morgan Stanley said in a note.

Morgan Stanley had expected 50 basis points of rate cuts by the ECB in the first three months of the year and the start of outright quantitative easing in the second quarter.   Continued...

 
Traders concentrate on their screens at the Frankfurt stock exchange February 2, 2012. REUTERS/Alex Domanski