* ECB, Bank of England leave rates on hold
* Eyes on ECB President Draghi's views on outlook
* Dollar index at 6-1/2 month highs as recovery strengthens
* European shares steady, close to 4-1/2 yr highs
* Spain successfully sells new bonds, yields ease
By Richard Hubbard
LONDON, March 7 European shares shed some of
their recent gains and the euro inched up slightly on Thursday
after the central banks of Europe and the UK kept interest rates
The single currency rose 0.4 percent to $1.3036 while
Britain's pound, which had hit a 2-1/2 year low below $1.50
, rose to $1.5050. European shares gave up gains of around
0.3 percent to be little changed, while U.S. stock
index futures pointed to another strong day on Thursday.
Both central bank decisions had been widely forecast, but
some in the markets had seen a chance rates would be cut given
recent weak economic data so there was some relief after the
Traders said the euro remains vulnerable to selling if, as
expected, the ECB President Mario Draghi signals at a news
conference which began at 1330 GMT that a future cut is likely.
The ECB has singled out the uneven transmission of its
record-low interest rates across the currency bloc as its main
problem at the moment so the market will be closely watching for
any hint on how Draghi plans to address this dilemma.
The central bank will also unveil the latest staff economic
projections, seen little changed from previous forecasts
published in December, which predicted 2013 would be a year of
Meanwhile in the bond market, Spanish and Italian bond
yields were lower though this was linked to Madrid's successful
sale of 5 billion euros ($6.5 billion) in new debt earlier.
The sale produced lower yields than a similar sale two weeks
ago, easing concerns about the impact of the political deadlock
in Italy and showing the ECB's promise to support struggling
countries continued to underpin demand.
Ten-year Spanish government bond yields fell
7.1 basis points after the sale to 4.96 percent and equivalent
Italian yields were 4.1 bps lower at 4.63 percent.
German bond futures stuck to tight ranges, with investors
showing little reaction to the ECB's monetary policy decision.
The main Bund futures contract was up 8 ticks on the
day at 145.20.
Commodity markets were mostly steady ahead of the news
conference by the ECB president, with Brent crude down
49 cents at $110.58 a barrel. U.S. crude rose 34 cents to
In Europe's equity markets the pan-European FTSEurofirst 300
index gained about 0.2 percent to 1,188.6 points, close
to its 4-1/2 year intraday high of 1,193.35 points hit on
Frankfurt's DAX, London's FTSE 100 and
Paris's CAC-40 were between 0.1 and 0.4 percent higher.
The prospect of future looser policy from the two major
world central banks, along with signs Japan is about to step up
aggressive monetary easing, is contrasting with a change in the
outlook for the U.S. Federal Reserve, giving the dollar a boost.
"The Fed is still pumping in $85 billion a month at the
moment," said Daragh Maher, currency strategist at HSBC. "But
the latest data has forced the idea that the U.S. economy is
improving and therefore, going forward, the direction of policy
The dollar hovered near its highest level in 6-1/2 months
against a basket of major at 82.42, having risen as high as
82.60, its highest since Aug. 20, in late Wednesday trade. It
has rallied more than 4 percent from this year's low of 78.92
plumbed on Feb. 1.
Investors have been revising their outlook for U.S. growth
after a report showed private sector employers are hiring at a
faster rate than expected, pointing to lower unemployment, a key
condition for the Fed to wind up its massive stimulus programme.
The jobs growth, which followed similarly strong reads on
housing and the services sector activity, has also bolstered
hopes that Friday's key non-farm payrolls data will surprise on
the upside and offset fears that government spending cuts and
tax rises would damage the recovery.
Despite weak economic performances in Europe, the UK and
Japan, the better outlook for the United States is maintaining
support for stocks, leaving the MSCI world equity index
little changed on the day ahead of the U.S. open
but close to its best levels since mid-2008.
American markets have also been drawing support from signs
that Congress is about to pass a measure to keep funding the
government until the end of September, easing the prospect of an
immediate fiscal crisis.