GLOBAL MARKETS-Euro drops after surprise ECB cut, shares rise

Richard Hubbard
Thursday, 7 Nov 2013 | 8:06 AM ET

LONDON, Nov 7 (Reuters) - A surprise cut in rates by the European Central Bank sent the euro sharply lower on Thursday, boosted government bond prices and saw the region's equity markets hit fresh five-year highs.

In response to a sharp fall in inflation, the ECB decided to reduce its main refinancing rate to record low of 0.25 percent.

"They want the double whammy of a lower euro on growth and (a boost to) inflation," said David Bloom, global head of FX strategy at HSBC. "We wanted a stronger response to the stronger euro/dollar and we've got it."

The euro slid more than 1 percent after the decision the day to hit a seven-week low of $1.3356, down from around $1.3490 just before the ECB announcement.

Bund futures rose as high as 141.88, up 73 ticks on the day. The Euro STOXX 50 index of euro zone blue chips hit a five-year high and was up 0.9 percent at 3,083.40 points. The pan-European FTSEurofirst 300 index was also at a five-year high, up 1.1 percent.

U.S. stock futures turned positive, implying Wall Street will open higher.