Global stocks, euro gain on surprise China move

Stocks and the euro recovered early losses on Wednesday, after China surprised with its first cut in banks' reserve requirements for nearly three years, moving into easing mode as Beijing looked to soften the country's economic slowdown.

At 12:03 GMT, the FTS Eurofirst 300 index of leading European shares was up 0.9 per cent at 956.49 points, after earlier being as low as 936.66. US stock index futures also pointed to a higher open on Wall Street.

Markets had fallen earlier on the back of a cut in financial sector ratings that added to worries about the fallout of the euro zone’s debt problems, as time ran out for policymakers to quell the two-year-old crisis.

A deal by euro zone finance ministers' to boost the firepower of the regional bailout fund, agreed late Tuesday, was seen as inadequate, and the Standard & Poor's downgrade of a host of leading banks fuelled the early sell off.

The China move, which lowers the reserve ratio for China's biggest banks to 21 per cent, to free up cash for small firms crimped by credit market strains, ironically came just after Chinese stocks posted their biggest one-day slide since August on the belief it was not about to ease monetary policy.

“It’s a surprising move — the market was not expecting the central bank to (cut RRR) so fast,” Shi Chenyu, economist with the investment banking unit of Industrial and Commercial Bank of China said. “The move sends a clear message that the central bank is ready to relax its policy stance. The euro also rose, although it was flat by 12:04 GMT, while the dollar reversed early gains against a basket of major currencies to a lso trade flat.

“This has just generated a bit of a bid for risk generally but typically moves on the back of Chinese policy announcements tend to be short-lived,” said Adam Cole, global head of FX strategy at RBC Capital Markets.

While Bund futures also pared gains, they soon recovered all of that and more, as traders focused on politicians’ persistently underwhelming policy response to the euro zone debt crisis.