* Dollar surges to highest in three years
* ECB launches 750 billion-euro asset purchase program
* Euro STOXX 600 falls 0.9%, wipes out earlier gains
* Euro zone bond yields fall
* Asian stock markets : https://tmsnrt.rs/2zpUAr4
* Graphic: World FX rates in 2020 http://tmsnrt.rs/2egbfVh
(Updates prices throughout, adds comment)
By Tom Wilson
LONDON, March 19 (Reuters) - The dollar surged on Thursday
as extraordinary steps by central banks across the world to stem
a coronavirus-induced financial rout saw mixed success, boosting
bonds but failing to halt losses in stocks.
The dollar gained as investors rushed to secure liquidity,
pushing the British pound GBP=D3 down 0.9% to its lowest since
1985 and rising 1% against major currencies =USD to its
highest since March 2017.
Bond markets stablised somewhat after the European Central
Bank pledged late on Wednesday to buy 750 billion euros ($820
billion) in sovereign debt through 2020.
That brought the ECB's planned purchases for this year to
1.1 trillion euro, with the new purchases alone worth 6% of the
euro zone's GDP. L8N2BBACD
Government bond yields in Italy and across the euro zone
dropped after the ECB's emergency measures, though European
stocks fell back into negative territory after arresting their
rout in early trading.
"The announcement (the ECB) has made has gone some way to
comforting markets that borrowing costs in those economies won't
be allowed to spiral higher," said Mike Bell, global market
strategist at J.P. Morgan Asset Management.
Europe's broad Euro STOXX 600 .STOXX fell 0.9% after
gaining more than 1% in early trading. Indexes in Frankfurt
.GDAXI , Paris .FCHI and London's FTSE .FTSE all saw
advances wiped out.
Earlier, MSCI's broadest index of Asia-Pacific shares
outside Japan slumped by 4% .MIAPJ0000PUS . Korea and Taiwan
led the losses as the index plunged to a four-year low, with
circuit breakers triggered in Seoul, Jakarta and Manila. .SO
Expected price swings for some of the world's biggest
currencies rocketed to multi-year highs as the demand for
dollars forced traders to dump currencies across the board.
For the British pound versus the dollar, expected volatility
gauges leapt to 24.4%, their highest level since before the 2016
Brexit vote. "One unresolved and really critical issue is what's going on
in volatility," said Andrew Sheets, chief cross-asset strategist
at Morgan Stanley. "I think that volatility needs to stabilise
before the broader market can heal."
MSCI's world equity index .MIWD00000PUS , which tracks
shares in 49 countries, fell 0.9%. Wall Street futures also
fell, pointing in volatile trading to losses of around 2%.
EScv1 .
ITALIAN YIELDS FALL
Italy, which has seen its borrowing costs jump in recent
days, led the drop in yields after the ECB move.
Its two-year bond yields slumped by than 100 basis points to
0.41% IT2YT=RR , heading for their biggest one-day fall since
1996. Italy's 10-year bond yields slid as much as 90 bps to
1.40% IT10YT=RR .
The gap over the safer German Bund's yields tightened almost
100 bps from Wednesday's closing levels and were set for the
biggest daily drop since the 2011 euro one crisis.
Markets elsewhere failed to respond to central bank action.
Before the ECB move, the U.S. Federal Reserve promised a
liquidity facility for money market mutual funds and the Bank of
Japan made two unscheduled bond purchases totalling 1.3 trillion
yen ($12 billion).
The Australian central bank slashed interest rates to a
record low of 0.25%.
Traders reported huge strains in bond markets, however, as
distressed funds sold any liquid asset to cover losses in stocks
and redemptions from investors. Benchmark 10-year sovereign bond yields in New Zealand,
Malaysia, Korea and Singapore and Thailand surged as prices
fell, and U.S. 10 year Treasuries US10YT=RR rose 10 basis
points through the session.
"Not only central banks but governments are throwing
everything at the economy right now, but markets aren't
responding," said Luca Paolini, chief strategist at Pictet Asset
Management.
Commodities also fell as the virus outbreak worsened. The
pandemic has killed almost 9,000 people globally, infected more
than 218,000 and prompted widespread emergency lockdowns.
Gold XAU= fell 1%, and like other assets was buffeted by
volatility. Copper hit its down-limit in Shanghai. GOL/ MET/L
Oil jumped after an overnight plunge to an 18-year low in
Asian trade. Brent LCOc1 was last up $1.16 to $26.04. O/R
Underlining expectations of severe economic damage from the
pandemic, J.P. Morgan economists forecast the U.S. economy will
shrink 14% in the next quarter and the Chinese economy will lose
more than 40% on an annualised basis in the current one.
"There is no longer doubt that the longest global expansion
on record will end this quarter," they said in a note. "The key
outlook issue now is gauging the depth and the duration of the
2020 recession."
For Reuters Live Markets blog on European and UK stock
markets, please click on: LIVE/
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Equities and bonds total return https://tmsnrt.rs/3deypWu
Emerging market currencies sink https://tmsnrt.rs/39YjsWG
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