Euro gains, stocks fall as ECB signals end to rate cuts

By Caroline Valetkevitch

NEW YORK (Reuters) - The euro jumped and global stock markets fell on Thursday as new stimulus measures by the European Central Bank were offset by a signal from its chief Mario Draghi that it would cut interest rates again only in the most extreme of circumstances.

Investors had initially cheered the ECB's announcement that it will cut rates to fresh record lows, start buying corporate debt for the first time and effectively begin paying banks to borrow from it to lend to companies and households.

That optimism dissipated as Draghi suggested that years of interest rate cuts may finally be at an end.

"Rates will stay low, very low, for a long period of time and well past the horizon of our purchases," Draghi said, referring to the bank's asset purchase program, due to end in March 2017.

But "from today's perspective and taking into account the support of our measures to growth and inflation, we don't anticipate that it will be necessary to reduce rates further."

The euro recovered from six-week lows against the dollar of $1.0823 to trade at a three-week high (EUR=) as money market rates in the euro zone rose to price out further deposit rate cuts. The euro was last at $1.1205, up 1.9 percent.

END TO RATE CUTS?

"Pretty much the key thing was that Draghi drew a line under further rate cuts," said Ned Rumpeltin, head of European Currency Strategy at TD Securities, noting it was the biggest move in the euro since the ECB's December meeting.

"That was a very clear broadcast and will be the final takeaway for people today."

The pan-regional FTSEurofirst 300 index (.FTEU3) closed 1.8 percent lower, while U.S. stocks were lower in afternoon U.S. trading, with a slide in oil prices weighing on energy shares.

The Dow Jones industrial average (.DJI) was down 100.46 points, or 0.59 percent, to 16,899.9, the S&P 500 (.SPX) had lost 10.03 points, or 0.5 percent, to 1,979.23 and the Nasdaq Composite (.IXIC) had dropped 38.60 points, or 0.83 percent, to 4,635.78.

MSCI's all-country world stock index dipped 0.2 percent.

"In the medium and longer term, most larger investors are looking through (the ECB move) and saying 'Will it be difficult removing ourselves from that all-in central bank policy-type environment?'” said Chris Hyzy, chief investment officer at Bank of America Global Wealth & Investment Management in New York.

Bond markets were buffeted by Draghi's mixed signals.

In the United States, the benchmark 10-year Treasury note was last down 10/32 in price to yield 1.9288 percent, against 1.892 percent on Wednesday.

OIL FALLS

Oil prices fell, with U.S. crude retreating from three-month highs as refinery maintenance threatened to raise record inventories of crude.

Brent (LCOc1) was down $1.02, or 2.5 percent, at $40.05 a barrel, while U.S. crude (CLc1) slid 45 cents, or 1.2 percent, to settle $37.84.

Gold rose as the euro bounced back. U.S. gold futures (GCv1) for April delivery were up 1.3 percent.

(Additional reporting by Chuck Mikolajczak in New York and Marc Jones in London; Editing by Bernadette Baum)