ECB's Greek bond ban hits Europe, Ukraine woes slam currency

LONDON (Reuters) - A European Central Bank decision to strike Greek bonds off its list of accepted collateral caused European shares and bonds to fall on Thursday, though losses were being cut and Wall Street looked set for a positive start.

As the ECB's move ratcheted up pressure on Greece's new anti-austerity government, the pan-European FTSEurofirst <.FTEU3> share index fell 0.4 percent after the euro tumbled overnight.

Greek bank shares plunged over 20 percent <.FTATBNK> and the country's short-term debt yields surged to almost 20 percent . Both then pared their losses, leaving stocks down just 7 percent.

Futures markets pointed to 0.5-0.6 percent gains on Wall Street , after encouraging jobless claims data were released before Friday's non-farm payrolls figures.

In Europe, the ECB's move upped the stakes in a standoff between the rest of the euro zone and Greece, where a new government wants to rewrite its aid-for-reform agreements.

Greece's central bank will now have to provide the country's banks with billions of euros of emergency funding. The ECB's decision needs to be approved by its Governing Council, but some at the bank sound as if they are preparing to play hardball.

"ELA (Emergency liquidity assistance) should only be awarded for the short term and to solvent banks," Germany's ECB member and Bundesbank chief, Jens Weidmann, told the business newspaper Boersen Zeitung in an interview.

"I am of the view that we should apply strict standards with ELA. If that should have consequences for financial stability, then politicians must live up to their responsibilities."

The euro had dropped sharply after the ECB's move late on Wednesday, but it recovered on Thursday, helped by the strongest rise in German industrial orders since early 2008.

The euro gained almost 1 percent on the dollar to put it back to $1.1480, where it had traded before the Greek bond ban. It also climbed more than 1 percent against the Swiss franc , as traders speculated that the Swiss National Bank was again buying euros to weaken the franc.

UKRAINE STRAIN

Oil markets steadied, after slumping nearly 10 percent in the previous session when the United States reported another rise in crude stockpiles, which had heightened worries about global oversupply.

Brent crude rose 83 cents to $54.99 a barrel, having fallen more than a dollar intra-day earlier. U.S. crude added 60 cents to $49.05.

"It will be some time yet before we see any sustained trend reversal in oil prices," said Carsten Fritsch, analyst at Commerzbank. "There's no basis for a sustained recovery at the moment."

The Ukraine conflict was also back in focus. Russia accused the United States of trying to tear Ukraine away from it and warned any supply of U.S. arms to Ukraine would pose a danger to Russia's national security.

The warning came as Ukraine's hryvnia slumped 34 percent after its central bank - which has been running out of reserves - scrapped daily auctions that have been propping up the currency.

It also hiked interest rates 5.5 percentage points to 19.5 percent, even though the economy is expected to face a recession this year.

"There is still panic on the market, connected with ongoing fighting," central bank governor Valeriia Gontareva said at a news conference.

Asian stock markets had been weighed down by Greek worries overnight, and China's move on Wednesday to ease its policy had pressured the region's currencies.

Japan's Nikkei <.N225> fell 1 percent after rising 2 percent the previous session. Shares in South Korea, Malaysia and Singapore also fell and Chinese shares <.CSI300><.SSEC> lost 1 percent.

The dollar was little changed against the yen at 117.35 yen and a touch softer against a basket of six major currencies <.DXY>. Safe-haven gold dipped to $1,262 an ounce, after adding 0.8 percent on Wednesday.

"We think the Greek issue will likely stir things up for a little while longer in the markets, which is why we think gold should benefit, likely at the expense of equities," INTL FCStone analyst Ed Meir said in a note.

(Reporting by Marc Jones; Editing by Larry King)

WhatsAppFacebookTwitterLinkedinBeloudBluesky