GLOBAL MARKETS-Robust ECB loan take-up lifts shares, commodities

Wed Feb 29, 2012 1:11pm GMT

* European banks borrow record 530 bln euros at ECB tender

* ECB liquidity boost lifts equities, commodities

* Oil prices recover after two days of losses

By Richard Hubbard

LONDON, Feb 29 (Reuters) - A substantial take-up of the European Central Bank's latest offer of cheap loans lifted stocks and commodities on Wednesday, driving demand for higher-yielding currencies at the expense of the euro, but worries over the region's debt crisis remain.

U.S. stocks were also poised to open higher on Wall St.

Around 800 banks in the euro area took 530 billion euros ($711.45 billion) at the ECB's second-ever offering of 3-year loans, essentially in line with market expectations.

The liquidity boost, which come to over a trillion euros when combined with a similar offering in late December, is expected to support demand for riskier assets like equities, commodities and peripheral European bonds.

"What the ECB has done through this programme is it's removed the chances of something major collapsing in the banking system and that having an effect on the whole economy," said Mouhammed Choukeir, the chief investment officer at British private bank Kleinwort Benson.

"We're a bit more upbeat on risk as a result of this action by the ECB, but we're by no means thinking that the sovereign crisis in Europe is over," he added.

The loan tender helped the FTSEurofirst 300 index of top European shares gain by 0.8 percent t 1,083.97 points, putting it back on track toward seven-month highs.

The MSCI's world equity index was up about 0.4 percent after Asian stocks rose to a seven-month high earlier in the day.

"The ECB's two long-term liquidity injections do not solve the underlying solvency problems in the euro area but they could push the crisis back into remission for a while if they give economic growth a boost," Trevor Greetham, director of asset allocation at Fidelity Worldwide Investment said.

"We moved overweight equities and commodities in our multi asset funds in February for the first time since July 2011."

Commodities like gold, silver and copper have been on a tear this year as central banks around the world loosen monetary policy to support global economic recovery while inflation pressures remain subdued.

U.S. FED IN FOCUS

Market attention will be firmly fixed on U.S. Federal Reserve Chairman Ben Bernanke's semi-annual testimony on monetary policy before the House Financial Services Committee later today for indications of whether the Fed is considering more policy easing moves.

The U.S. dollar has been weakening against a range of currencies since mid-January and has fallen substantially against the Japanese yen since the Bank of Japan eased policy unexpectedly on Feb. 14.

However, the euro, which is also seen as a riskier asset, fell slightly against the U.S dollar to $1.3450 after the ECB tender result came out, trading just below a near three-month peak of $1.3487 set on Friday.

Traders said that as the result was in line with expectations and had been more or less priced in, the euro's scope for gains was limited and the excess liquidity was likely to boost carry trades, in which investors use lower-yielding currencies to buy riskier assets, which would weigh on the euro.

The Australian and New Zealand dollars rose against the U.S. dollar, and also made gains against the euro.

The improved risk sentiment had an immediate spillover into the peripheral European government debt market, with Italian two-year bond yields falling 24 basis points to 2.27 percent , their lowest level since late 2010.

The benchmark 10-year Italian bond yield also extended its fall to the lowest since September at 5.27 percent .

Oil prices recovered after sharp losses on Tuesday, with Brent crude rising over $1 a barrel higher to $122.70. Oil has risen sharply this year, raising concerns over global economic growth going forward.

U.S. crude gained 51 cents to $107.06 a barrel. ($1 = 0.7450 euros) (Editing by Anna Willard and Hugh Lawson)

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