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ECB bond purchases boost equities

London - European and US stocks rallied Thursday after the ECB said it will inject over €1.0trn into the stagnant eurozone economy and the euro sank against the dollar.

European Central Bank (ECB) chief Mario Draghi's announcement of a €60bn per month in quantitative easing through September 2016 exceeded market expectations by €10bn.

Frankfurt's DAX 30 climbed 1.32% to a new record close, while the CAC 40 in Paris shot up 1.52%. Milan stocks jumped 2.44% and Madrid 1.70%.

In Britain, which is not part of the eurozone, the FTSE 100 index of top companies rose 1.02% to end the day at 6 796.63 points.

Across the Atlantic, Wall Street's top indices added 1.5% or more each, rising on a surge in bank and tech shares.

The Dow Jones Industrial average was up 1.48%, the broad-based S&P 500 1.53% and the Nasdaq Composite 1.78%.

Meanwhile, the euro plummeted more than two percent against the greenback despite ample preparation in markets for the new ECB quantitative easing operation.

The euro dropped to $1.1359 from $1.1607 late Wednesday, to reach its lowest level against the dollar in 11 years.

Gold also gained, adding $7.00 an ounce to just barely reclaim the $1,300 level.

'Roll of the dice'

The programme of sovereign bond purchases came after eurozone inflation turned negative in December, stoking fears the 19-nation eurozone is on the brink of a dangerous deflationary spiral.

"Mario Draghi has been left with little choice than to begin a more robust than expected quantitative easing programme in a bid to awake the economies of the eurozone from their slumber," said Dennis de Jong, boss of trading site UFX.com.

"This play is seen by many as the last roll of the dice for the beleaguered euro.... There will be a lot of people holding their breath over the coming months," he said.

The ECB chief kept the door wide open to further purchases.

"They are intended to be carried out until end-September 2016 and will in any case be conducted until we see a sustained adjustment in the path of inflation," Draghi told a news conference.

Meanwhile eurozone government bond yields fell on the prospect of massive ECB purchases.

The rate of return to investors on benchmark Spanish 10-year bonds hit a record low of 1.397% before closing at 1.405%, down from 1.530% the night before.

The yield on Italian 10-year bonds was at 1.549% near its record low of 1.548%, down from 1.691% on Wednesday.

French 10-year bond yields ended the day at 0.617% after touching a low of 0.587%, compared with 0.704% the day before.

But US dollar bond yields surged with the greenback: the 10-year Treasury rose to 1.90% from 1.85%.

Analysts said the ECB's move bodes well for continued strength in stocks - as long as it produces results - but more weakness for the euro.

"US asset prices will be supported by the liquidity created by the ECB, just as Fed-created liquidity supported European stocks" during the during QE3 quantitative easing operation of the US central bank, said Ian Shepherdson of Pantheon Macroeconomics.

As for the currency, he said, the signs point to more dollar strength.

"The real tests will come when the newly printed money starts to flow and, especially, if the Fed signals its intentions to start reducing policy accommodation sooner than the markets expect."

Eric Viloria, currency strategist at Wells Fargo, said the euro should continue to tumble to below $1.10, possibly hitting $1.03 by the time the ECB's QE programme is slated to end.

"Given today's announcement, and with continued softness in eurozone economic trends, we expect the euro to extend its decline over time."

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