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LONDON (Alliance News) - Major European stock markets made gains Thursday, while the euro slumped to its lowest level against the dollar in more than a year, after the European Central Bank responded to persistent signs of weakness in the eurozone economy by announcing the introduction of a limited asset-buying programme, along with a further cut to its benchmark interest rates.

The FTSE 100, which was already nearing record levels, pushed up to a fresh 14-year high shortly after the unexpected ECB rate cuts, peaking at 6,904.86, before consolidating towards the end of the day to close just 0.1% higher at 6,877.97.

A sharp drop by BP near the close of trade, on the back of US court ruling against it, helped to trim the blue-chip index's gains.

Mid- and small-cap stocks underperformed somewhat, with the FTSE 250 ending just fractionally higher at 15,995.79, and the AIM All-Share closing down 0.2% at 777.38.

European equity markets cheered the ECB decision, with the French CAC 40 gaining 1.6%, while the German DAX closed up 1.0%.

After the European close, US markets were continuing higher, with the DJIA and the S&P 500 both up about 0.3%.

At its regular monthly policy meeting, the ECB cut all of its key interest rates by 10 basis points, putting the main refinancing rate at 0.05%, the deposit rate at negative 0.2%, and the marginal lending rate at 0.3%. The changes will take effect from September 10.

On top of the rate cuts, the ECB will start to buy asset-backed securities and covered bonds from October, the details of which will be announced at next month's policy meeting. The ECB held back from implementing a full-blown quantitative-easing programme.

The policy shift came as the ECB also lowered its predictions for economic growth this year in the euro-area to 0.9% from the 1.0% it predicted in June, while the 2015 growth forecast was lowered to 1.6% from 1.7%. Inflation expectations for the current year were also lowered to 0.6% from 0.7%.

"The ECB has today responded proactively to European deflationary threats and will begin buying a broad portfolio of simple asset-backed securities and covered bonds. President Draghi also admitted discussing the introduction of quantitative easing, which has traditionally boosted demand for both equities and bonds," said Investec head of fixed interest Darren Ruane.

The cuts came as a surprise to the markets. Given that only three months have passed since the ECB made the historic decision to move to negative interest rates for the first time, and that some of the new measures introduced at that June meeting are yet to take effect, most analysts had been predicting policy makers to hold back from making any changes this month.

The Targeted Long Term Refinancing Operations, born at the June meeting, do not come into effect until later this month, which means the ECB is introducing further monetary easing measures before the last ones have even started. At the press conference that followed Thursday's policy decision ECB President Mario Draghi defended the move by saying the new lower interest rates will encourage the take up of the TLTRO's.

"Let's not forget these new measures are in addition to the new TLTRO's which are due to begin on the 18th September, which suggests that the ECB are becoming increasingly concerned about the lack of growth in the Euro area," said CMC Markets chief market analyst Michael Hewson.

The surprise sent the euro tumbling against other major currencies, losing more than a cent against the dollar in seconds to trade below USD1.30 for the first time in almost 14 months. Against the Swiss franc, the single currency printed a 20-month low of EUR1.2050, and against the pound it lost almost a penny, reaching a low of GBP0.7902. The euro continued to fall throughout the afternoon and at the time of the UK equity market close was trading at USD1.2930, a huge loss of more than 2 cents over the session.

Earlier in the session Thursday, the Bank of England rate setting meeting passed without event, as policy makers kept rates on hold at 0.5%, and maintained the stock of asset purchases at GBP375 billion, as expected.

Ahead of Friday's US non-farm payroll number, the difference between the recovery of the eurozone and US economies is striking, with the US ISM service sector PMI printing 59.6 in August, up from 58.7 in July and recording its fastest expansion in many years.

Within the UK equity movers Thursday, BP was hit late in the afternoon session by a US court ruling that may lead to the the oil giant having to pay billions more dollars in compensation for its part in the biggest oil spill in US history.

In a long-awaited decision, US District Judge Carl Barbier ruled that BP bears 67% of the blame for the 2010 Gulf of Mexico spill, with drilling rig owner Transocean taking 30% of the blame, and cement contractor Halliburton Energy taking 3%. The number of barrels of oil that was spilled has yet to be determined and a financial penalty yet to be declared. In any case, BP said it "strongly disagrees" with the decision and will be taking it to appeal.

At the other end of the leading index, Standard Life was the stand-out gainer, closing up 8.1% following the unexpected announcement late Wednesday that it has agreed to sell its Canadian business for GBP2.2 billion and return GBP1.75 billion of that to shareholders, while retaining the remaining GBP450.0 million for general corporate purposes. The sale is expected to generate a one-off gain of GBP1.2 billion for Standard Life. Analysts have been impressed by the achieved sale price for the Canadian business, which is based on an guidance for GBP155 million of pretax operating profit and represents an earnings multiple of 19.5x.

FTSE 250 retailer SuperGroup gained a huge 14% after posting a 16% rise in first quarter revenue to GBP87 million from GBP75.1 million a year earlier. The owner of the Superdry clothing brand said it saw positive performances from its wholesale and retail arms and a gradual improvement in like-for-like retail sales against strong comparatives.

Serco gained 1.8% after the outsourcing company said it has been selected as the preferred bidder to continue providing onshore immigration services to the Australian government. Commercial negotiations and the procurement process for the contract are ongoing, Serco said, and are expected to conclude in the coming few months.

Go-Ahead Group gained 3.4% after the bus and rail operator reported a rise in pretax profit to GBP91.2 million for the year ended June 28, up from GBP63.1 million a year earlier, as revenue rose to GBP2.70 billion, from GBP2.57 billion, and its operating profit margin increased. The group said it had carried record passenger numbers on both its rail and bus operations during the year. Moreover, reflecting its confidence going forward, it raised its final dividend for the year to 59.0 pence, from 55.5 pence, bringing the total for the year to 84.5 pence, compared with 81.0 pence.

Betfair Group rose 3.2% as the online betting company said revenue in the three months to July 31 was up 30% to GBP117.4 million from the GBP90.4 million reported last year, driven by the football World Cup, favourable sporting results, an improved performance in its Gaming division and continued growth in Betfair US.

AIM-listed Snacktime had a terrible day, with the vending machine operator losing about a third of its value after it issued a profit warning, lowering its full-year pretax earnings estimates to about GBP1.1 million from the GBP1.3 million it had previously predicted. The company also said it had called off the planned sale of its Drinkmaster business after potential buyer interest waned when the unit lost some of the business it had with its largest customer, bookmaker William Hill.

The UK corporate calendar is looking sparse Friday, with just interim results from AIM-listed EMIS Group scheduled.

The main focus of the day will be undoubtedly be the US non-farm payroll report for August, to which investors will be looking for an indication on the timing of the first US interest rate rise. Ahead of that, German industrial production data for July and the second estimate of second-quarter eurozone GDP will provide some interest.

By Jon Darby; jondarby@alliancenews.com; @jondarby100

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