Euro bonds rally, world shares sink in Swiss after-shock

By Marc Jones

LONDON (Reuters) - The shockwaves of Switzerland's move to ditch its currency cap were still being felt on Friday, as investors made a fresh grab for top-rated government bonds, and world shares and commodities headed for another week of losses.

The Swiss franc dipped after Thursday's surge, but Swiss shares were again Europe's worst performers as stocks worldwide limped to their third week in the red.

The fragile risk appetite meant more record low yields for German and other core euro zone government bonds, while there were falls in Greek markets as it emerged two of its banks had requested emergency ECB funding aid.

For once commodity markets were an area of relative calm as oil climbed to just below $49 a barrel, safe-haven gold cooled after its best run in 11 months and copper settled after a weekly plunge of nearly 7 percent.

"It's not panic but there has been volatility across the board, in FX, in commodities, in bonds and in stocks this week," said Alvin Tan, a strategist at Societe Generale.

"For a developed G10 currency, the 20 percent move in the Swiss franc (this week) was extraordinary."

The combination of the Swiss fallout and bets that the European Central Bank will launch an aggressive government bond buying programme using new money next week kept the euro pinned near an 11-year low against the dollar.

It rose over 4.5 percent against the Swiss franc after suffering a more than 18 percent fall on Thursday, the biggest daily loss in its history.

Top ECB policymaker Benoit Coeure further stoked expectations for quantitative easing. He said the aim would be to anchor long-term financing conditions and restore confidence in the bloc's inflation target of close to and below 2 percent.

European stocks were down 0.8 percent, however, as Swiss shares dropped another 5 percent and Greek shares lost over 2 percent.

DIGGING FOR TREASURIES

In Asia, MSCI's broadest index of Asia-Pacific shares outside Japan shed about 0.4 percent, while the yen's recent rebound helped push Japan's Nikkei stock average down 1.4 percent, and 1.9 percent for the week.

The dollar touched a fresh one-month low of 115.85 yen, but was last 0.3 percent higher on the day at 116.41 and on course for its fifth weekly rise on the trot against a basket of major currencies.

Chinese stocks were again a bright spot, with the Shanghai Composite Index gaining 0.9 percent as the country's central bank lifted banks' relending quotas to firms and farmers.

The mood was kept in check, however, by data showing foreign direct investment rose at its slowest pace in two years in 2014, underscoring the cooling of the economy.

Further undermining the dollar's attractiveness, U.S. Treasury prices rose and yields fell as investors sought the safety of fixed-income assets, with the 30-year yield touching fresh all-time lows and the benchmark 10-year yield at nearly two-year lows. The 10-year yield fell to 1.717 percent in Europe, from its U.S. close of 1.775 percent on Thursday.

Meanwhile, Brent crude oil futures rose above $49 a barrel as the International Energy Agency (IEA) said the tide of recent price slumps may turn.

"How low the market's floor will be is anybody's guess. But the sell-off is having an impact," the IEA said on Friday. "A price recovery - barring any major disruption - may not be imminent, but signs are mounting that the tide will turn," said the agency.

(Additional reporting by Jemima Kelly; Editing by Mark Trevelyan)