ECB corporate bond buying plans lift stocks, hurt euro

LONDON (Reuters) - European shares got a major lift while the euro and the region's bond yields fell on Tuesday after European Central Bank insiders told Reuters the bank was readying a plan to buy corporate bonds.

The move could start at the beginning of next year and though not the kind of full-scale government bond buying that markets have been angling for, it would be a major step up by the ECB as it battles a slowing euro zone economy.

European shares <.FTEU3> jumped immediately after the report, with Italian <.FTMIB>, French <.FCHI> and Spanish <.IBEX> stocks -- potentially the main beneficiaries of the ECB's actions -- leading the way among the main bourses as they surged 1.8 to 2.2 percent.

The euro tumbled to a session low of $1.2760 against the dollar, while there was a complete turnaround in bond markets with a rush down southern euro zone yields and a rush up German ones. [GVD/EUR]

"There has definitely been an impact on the markets," said Luca Jellinek head of European interest rates strategy, at Credit Agricole.

"I don't know that buying corporate bonds really changes the underlying issues of low growth and low inflation, but any sign from the ECB that it will do more is a positive."

Traders had already been giving a tentative thumbs up to growth data from China earlier as world markets <.MIWD00000PUS> continued to recover from last week's heavy falls, although the data did not change the perception that the world's second-biggest economy will continue to slow.

China's economy grew 7.3 percent in July-September official Beijing data showed, slightly above the 7.2 percent forecast by analysts. However, it was the weakest for any quarter since the 2008/09 global financial crisis.

With the euro tumbling on the ECB bond-buying news, the dollar gained some traction and left the <.DXY> dollar basket up 0.2 percent after its 2 percent slide over the last couple of weeks.

The Australian dollar , often seen as a liquid proxy of Chinese growth prospects given Australia's large trade exposure, got a lift from Beijing's data, but had handed back some of those gains in Europe.

"The euro is the major move," said Vasileios Gkionakis, global head of FX strategy at UniCredit in London. "We started the day with a fairly bearish mood on the dollar but that changed after we saw the headlines on the ECB (buying corporate bonds)."

EARNINGS

Europe's positive sentiment was expected to follow into U.S. trading, with U.S. futures pointing to early gains of 0.8 percent for the S&P 500 and almost 1 percent for the Dow Jones industrial. <1YMc1>

Gadget giant Apple reported a better-than-expected 12 percent jump in revenue on Monday and U.S. retail sales data is due later alongside another flurry of earnings, including from Coca Cola , McDonalds and Lockheed Martin. . [RESF/US]

A breakdown of the earlier China data showed industrial output rose a better-than-expected 8.0 percent in September from a year earlier, up from August's six-year low of 6.9 percent growth.

However, fixed-asset investment and retail sales figures were weaker than expected. The Shanghai Composite index <.SSEC> slipped 0.4 percent, while MSCI's broadest index of Asia-Pacific shares outside Japan <.MIAPJ0000PUS> ended broadly flat.

Japan's Nikkei <.N225> also took a heavy 2 percent hit, as the yen took advantage of a weakened dollar in Asian trading and as investors locked in profits after the previous session's 4 percent rally. [.T]

OIL, TREASURY YIELDS REBOUND

The wilting of the dollar this month has come amid signs that with global growth and inflation falling, the U.S. Federal Reserve may hold off from a first post-financial crisis interest rate hike until deep into next year.

Yields on benchmark U.S. 10-year government bonds climbed back above 2.20 percent in European trade though. German Bund yields led the way as the ECB bond-buying news encouraged investors out of safer but lower-yielding assets.

Dallas Federal Reserve President Richard Fisher also said on Monday that last week's market turbulence should not stop the Fed from ending its stimulus program, and that the economy could be fully recovered from the effects of the financial crisis and recession by as early as next year.

Shares in French oil giant Total were also in focus in Europe after its chief executive Christophe de Margerie was killed when his plane collided with a snow plow during takeoff at a Moscow airport.

Like much of the region's stock markets, though, Total shares fought back from a early 1.2 percent drop to climb higher.

In commodities trading, spot gold added about 0.3 percent to $1,249 an ounce, bolstered in part by renewed physical demand ahead of the Diwali festival in India this week.

Oil also clawed back some more of its recent sharp losses as Brent crept up to $85.75 a barrel and U.S. crude hovered at $82.87.

(Additional reporting by China Economics Team; Editing by Susan Fenton)

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