The euro suffered its biggest fall in eight months and share and bond markets rallied yesterday, after the European Central Bank vowed not to raise euro zone interest rates before the middle of next year.

The bank said it was pulling the plug on its 2.55 trillion euro stimulus programme, but after the Federal Reserve raised US interest rates for the second time this year on Wednesday, the ECB rate promise came as a relief.

The pan-European STOXX 600 index raced back into positive territory after a morning in the red, and Wall Street opened higher, though basic resources stocks stayed down after weak data from big metals consumer China.

Germany’s DAX and France’s CAC40 led the European stocks rebound as the euro tumbled back under $1.17 from well over $1.18.

Government borrowing costs slid too as traders recalibrated for a longer period of sub-zero ECB rates.

Germany’s 10-year Bunds were offering 0.45 per cent compared with 0.49 per cent before the ECB statement. US Treasuries meanwhile were down to 2.94 per cent having briefly topped 3 per cent overnight after the Fed pushed up its interest rates.

An increasingly murky economic European outlook could extend into next year in some countries, he said, also acknowledging a developing trade war with the United States and a populist challenge from Italy’s new government.

On the latter, he said there had been no “significant” contagion, and nothing like the turmoil seen when Greece’s future in the euro was teetering in the balance.

Also keeping investors in check were concerns about US threats to impose tariffs on $50 billion of Chinese goods.

Top US trade officials will also meet Canadian counterparts for the first time since last week’s bitter exchanges between their countries’ leaders at a G7 meeting.

The S&P 500 and Dow Jones and Nasdaq all started higher though. boosted by the ECB's signals and updated data that included the best retail sales figures in six months and an unexpected dip in jobless claims. That saw the dollar kick all the way up to $1.1670 per euro from its pre-ECB level of $1.1820, clamber back to 110.13 yen, and approach a 3-month high against Canada's dollar.

The dollar index, which tracks it against six top currencies, swung round to be 0.5 per cent higher too after spending the European morning 0.4 per cent lower.

Meanwhile, oil prices were little changed, underpinned by a bigger-than-expected decline in US crude inventories and surprise drawdowns in gasoline and distillates, which indicated strong demand in the world's top oil consumer.

Brent and US crude futures traded at $76.57 and $66.97 a barrel respectively, to extend their recovery from eight-week lows touched last week.

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