* 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 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)