June 6, 2013 / 3:48 AM / in 4 years

Euro gains as ECB holds, Fed fears keep world shares weak

A man walks through the lobby of the London Stock Exchange August 5, 2011.Suzanne Plunkett

LONDON (Reuters) - The European Central Bank's decision to leave rates unchanged lifted the euro to near a four week high on Thursday, but uncertainty over the U.S. Federal Reserve's next move kept world share markets on edge.

The euro inched up to $1.3123 after the announcement, just shy of a four-week high of $1.3131 struck earlier, German Bund futures inched lower and European shares were little changed, holding on modest gains of 0.3 percent.

As widely expected, the ECB kept its interest rate at a record low 0.5 percent deciding to waits for signs of the economic turnaround it has predicted for the region in the second half of the year.

Investors will now shift their focus to President Mario Draghi's news conference for clarity on the central bank current view of the currency bloc's economic prospects and its attitude to future rate cuts.

"The expectation they (the ECB) would do something today was quite low, but many are quite divided about what they are going to do going forward so the press conference is still anticipated with some eagerness," said Jan von Gerich, chief strategist for developed markets at Nordea.

Earlier the Bank of England also chose to leaves its loose monetary policy unchanged at the conclusion of the final policy meeting under current Governor Mervyn King after recent data pointed to a tentative pick-up in activity.

With no surprises from either central bank, the markets attention is now expected to switch to Friday's U.S. non-farm payrolls report which could determine when the Federal Reserve begins tapering its bond-buying.

JOBS KEY

U.S. stock index futures pointed to a slight recovery on Wall Street when trading gets underway after two days of solid declines sparked by fears the Fed may scale back its huge bond-buying program before the economy was back on its feet. .N

A strong nonfarm payrolls report on Fed, which a signs of economic recovery would add to speculation the Fed could begin tapering back its stimulus efforts before the end of the year, putting pressure on all riskier asset markets.

The fears about the Fed cutbacks over the past two weeks along with worries about the effectiveness of Japan's radical economic stimulus have rocked global equity markets, leaving MSCI's world equity index .MIWD00000PUS near six week lows.

Another volatile session for Japan's Nikkei index on Thursday, which ended below 13,000 for the first time in two months, undermined Asian market sentiment, sending shares to fresh 2013 lows.

The losses offset European positive session to leave the MSCI's world index .MIWD00000PUS down 0.1 percent on the day and at its lowest level since April 24.

Dollar-yen has also been tracking the moves in Nikkei stock average as foreign investors wind back the hedges they had put on for protection from big slide in the yen's which happened between November and May as Bank of Japan loosened its policies.

The dollar was flat against the yen at 99.10 yen, having struck a four-week low of 98.83 yen earlier in the day.

In commodity markets, oil prices were caught between the worries about the Fed cutting back on monetary easing and evidence of a big drop in U.S. oil stocks, leaving Brent crude steady at around $103 a barrel.

U.S. oil rose 40 cents to $94.14 per barrel.

"The market direction will depend a lot on what the (U.S.) jobs data shows," said Victor Shum, vice-president of energy consultancy IHS Energy Insight. "But overall, I am bearish on prices because supplies are ahead of demand."

Additional reporting by Emelia Sithole-Matarise; editing by Ron Askew

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