By Marc Jones
LONDON (Reuters) - The euro pulled out of its recent dive on Thursday, chalking up its biggest rise against the dollar in a month, after a week of breakneck moves in the world's two biggest currencies.
The dollar's reversal, cemented by weak U.S. retail sales data, gave some respite to emerging markets as well as to oil and commodities heavily correlated to the U.S. currency's strength and helped MSCI's main world stocks index <.MIWD00000PUS> secure its first rise in five days.
Wall Street looked set to open higher, according to index futures
After surging over 1.5 percent on Wednesday and 15 percent since the start of the year, European bourses had mixed fortunes. The pan-European FTSEurofirst 300 index <.FTEU3> rose 0.3 percent and London's FTSE <.FTSE> added 1 percent but Frankfurt's DAX <.GDAXI> dipped 0.1 percent and Paris's CAC <.FCHI> was flat.
The enormous market moves over the last week have been driven by the starkly diverging policies of the world's major central banks.
The European Central Bank began a 1 trillion euro bond buying campaign on Monday, Japan's central bank is busily printing money, but the U.S. Federal Reserve is heading toward its first rate rise in almost a decade.
The euro, which fell as far as $1.0494 in Asia, its lowest since Jan 2003, last traded at $1.0653, up 1 percent on the day.
"The market was definitely wrong-footed by the move this morning, which I suspect initially began as a profit-taking exercise for some dollar longs," said Daragh Maher, a currency strategist at HSBC in London.
"What (it) shows is that the market had become too one-way in its mindset. This has reintroduced a bit of two-way risk, and a bit of pain, I'm sure."
The dollar index, which measures the greenback against a basket of currencies, fell 0.7 percent to 99.094, having earlier topped 100 for the first time since April 2003.
COMMODITY RELIEF
Euro zone government bonds rallied for a fourth day, mainly in the 30-year sector as the ECB forged ahead with purchases under its quantitative easing program and investors scooped up bonds at auction in Spain and Italy.
"A lot of people are playing the game of buying at the auction, and selling to the ECB later on," said Piet Lammens, a strategist at KBC.
Top ECB policymaker Benoit Coeure said the bank had bought 9.8 billion euros of bonds in the first three days of its program, well above the run rate needed to hit its roughly 50 billion a month target for government bonds.
Asian markets were lifted by a surprise interest rate cut by South Korea that came hot on the heels of one from Thailand.
A cut in Serbia's repo rate on Thursday took the number of central banks around the world that have cut rates this year to 24.
MSCI's broadest index of Asia-Pacific shares outside Japan <.MIAPJ0000PUS> extended gains and was up 1.1 percent, moving away from Wednesday's seven-week lows. MSCI's 46-country benchmark world index climbed off one-month lows.
The dollar's dip also helped commodities. European benchmark Brent
(Reporting by Marc Jones, additional reporting by John Geddie, Jemima Kelly and Nigel Stephenson; Editing by Tom Heneghan)
