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 In anticipation of lower interest rates, some euro zone government
bond yields fell. This helped push the premium that two-year U.S.
government debt offers over euro zone benchmarks to its widest since
2007.
In one of its most keenly awaited decisions in years, the ECB is
expected on Thursday to impose negative interest rates.
Economists in a Reuters poll forecast the ECB would cut its main
refinancing rate to 0.10 percent from 0.25 percent and its overnight
deposit rate to -0.10 percent from zero. It may also launch a
program of loans to banks to encourage lending.
The consensus view that the central bank will act is so strong that
analysts see scope for market disappointment if it fails to meet
these high expectations.
ECB President Mario Draghi has expressed concern that a strong euro
is contributing to a slowing of inflation that could derail the
recovery in the 18-country euro zone.
Steve Barrow, G10 strategist at Standard Bank, said in a note ECB
officials would "have their fingers crossed" for a weaker euro but
that the outcome was not certain.
"Achieving a weaker euro means fighting two enemies: economic
fundamentals and market lethargy. Put the two together and the
chances of significant success for the ECB seem limited," he said.
The euro <EUR=> held steady at $1.3600. It has fallen some 4 cents
since the ECB's May meeting, hitting $1.3588 a week ago.
However, some in the market said the euro could rebound if the ECB
did not offer a surprise.
"Investors could cut some of their euro shorts helping euro/dollar
higher towards $1.3700 if the ECB delivers but does not exceed
market expectations," said Valentin Marinov, currency strategist at
Citi.
DOWNSIDE RISKS
The pan-European FTSEurofirst 300 share index <.FTEU3> was up 0.02
percent at 05.45 a.m. EDT in very low volumes as investors moved to
the sidelines before the ECB meeting.
"Stocks seem capped at the moment and risks are mostly on the
downside if the ECB doesn't deliver. It's very difficult to predict
what the new measures will be. It's best to be neutral equities
right now," said Arnaud Scarpaci, fund manager at Montaigne Capital
in Paris.
Wall Street stock futures <SPc1> were down a shade, though the ECB
decision, due at 7.45 a.m. EDT, and any announcement bank chief
Mario Draghi might make in his news conference beginning at 8.30
a.m. EDT should be clear before the U.S. market opens.
Also on Thursday, leaders of the world's leading industrial
countries were meeting Paris for talks on the economy.
The talks are expected to reiterate that all members of the Group of
Seven must focus on sustaining economic recovery and tightening
regulations to prevent banking sector problems.
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Asian shares edged higher, shrugging off a fall in HSBC/Markit's
measure of Chinese service sector activity. It dipped to 50.7 in May
from 51.4 in April but stayed above the 50-point level that divides
growth from contraction. [ID:nL3N0OL12J]
MSCI's broadest index of Asia-Pacific shares outside Japan
<.MIAPJ0000PUS> rose 0.3 percent.
Japan's Nikkei <.N225> ended 0.08 percent higher at 15,079, a near
three-month closing high as yen weakness lifted the mood.
Emerging markets shares measured by MSCI <.MSCIEF> were up 0.2
percent.
Trading volumes on Wall Street were light before the ECB meeting.
The S&P 500 index <.SP500> edged up to a new record close as
investors brushed off weaker-than-expected jobs data and focused on
an acceleration in service-sector growth [.N]
The dollar index <.DXY>. which measures the greenback against a
currency basket, held steady. The U.S. currency eased 0.3 percent to
102.46 yen <.JPY>.
U.S. Treasury yields came off overnight highs as investors took
profit on a recent rally before the ECB meeting. Ten-year yields
<US10YT=RR> were last at 2.58 percent.
In commodity markets, copper edged up after suffering its biggest
one-day fall since mid-April amid jitters about the impact on
financing deals from a probe at a Chinese port.
Benchmark copper <CMCU3> was changing hands at $6,775 a ton, having
shed 1.2 percent on Wednesday.
Gold idled at $1,244.30 an ounce <XAU=, still pinned near a recent
four-month trough of $1,240.61.
Brent crude <LCOc1> eased to $108 a barrel on reduced tension in
Ukraine and ample supply in the United States.
(Additional reporting by Wayne Cole in Sydney, Jamie McGeever,
Anirban Nag and Emelia Sithole-Matarise in London and Blaise
Robinson in Paris; Editing by Gareth Jones)
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