Global shares jump, yen slumps as BOJ cranks up stimulus

By Marc Jones

LONDON (Reuters) - World shares jumped and the yen fell to a near seven-year low against the dollar on Friday as the Bank of Japan surprised financial markets by significantly expanding its massive stimulus programme.

In a rare split decision, the BOJ's board voted 5-4 to accelerate purchases of Japanese government bonds so that its holdings increase at an annual pace of 80 trillion yen ($725 billion), up by 30 trillion yen.

The central bank also said it would triple its purchases of exchange-traded funds and real-estate investment trusts (REITs), while sources said the government's huge pension fund would more than double its holdings of domestic stocks.

For investors, the timing of the moves sent a strong signal, coming as six years of aggressive U.S. stimulus ends and as weak euro zone inflation data keeps the pressure on the ECB to further ease its policy.

Tokyo's Nikkei share index jumped almost 5 percent to its highest level since late 2007 as the BOJ said its move was a preemptive strike at "a critical moment in the effort to break free from the deflationary mindset" in Japan.

European stocks got a big lift too, climbing 1.4 percent and U.S. futures pointed to similar gains when trading resumes in New York. Stocks there were lifted on Thursday by strong third quarter U.S. GDP data and another round of upbeat earnings.

"What is important today is not only the BOJ action but also the news that the Japanese government's pension fund will be increasing the allocation to Japanese equities," Alvin Tan, an FX strategist at Societe Generale in London, said.

"This plus the fact the U.S. stock market appears to be experiencing a v-shaped recovery from the recent sell-off is preparing the ground for a pretty strong 'risk-on' situation until the end of the year," he added.

In frenetic currency market trading, the yen tumbled to its lowest level in nearly seven years against the dollar, putting it on track for its biggest losses in more than a year.

The dollar surged more than 2 percent, soaring past its Oct. 1 high of 110.09 yen to 111.70 yen, the highest since January 2008.

BOJ Governor Haruhiko Kuroda told reporters after its meeting that there was still room for further easing if needed, but the central bank believed Friday's steps were sufficient.

DATA DELUGE

The day's packed schedule of U.S. economic data started mixed as the weakest consumer spending figures in eight months offset the largest quarterly increase in U.S. wages since 2008. Later there is business activity and consumer sentiment data too.

Japan's moves, though, meant there was an intense appetite for higher-yielding but riskier assets as investors put aside nerves about this week's end of U.S. stimulus and bet the new flood of central bank money would continue to buoy asset prices.

As U.S. trading neared, the FTSEurofirst 300 index of top European shares was up 1.4 percent at 1,345.93 points, extending a sharp two-week rally, while southern European government bonds also made ground at the expense of Treasuries and Bunds.

A tick up in euro zone inflation to 0.4 percent had offered a glimmer of hope the bloc's beleaguered economy will avoid deflation though the reading that strips out volatile elements like energy, food and tobacco dipped.

"The data does little to relieve the pressure on Mario Draghi to embark on a quantitative easing programme," said Hargreaves Lansdown economist Ben Brettell.

Those expectations left the euro 0.4 percent lower at $1.2561 while the dollar index, which surged this week after the Federal Reserve ended its stimulus programme with some confident-sounding rhetoric, was up 0.6 percent.

ROUBLE RUMBLED

There was also intense focus on Russia as a 150 basis points rate hike to 9.5 percent by its central bank failed to bring relief to the badly beaten rouble.

It went into a fresh slide shortly after the decision and was testing its all-time low at 42.3575 to the dollar. For traders, the big issue is the bank's automatic intervention policy. Market talk beforehand was that it could scrap it, something currently planned for early next year.

Precious metals were also taking a hammering. Gold, and silver, both down 3 percent, slumped to their lowest since 2010 as the dollar and stock markets soared.

The more growth-attuned copper, aluminium and nickel climbed, but the stronger dollar also meant Brent oil fell back towards $85 a barrel as it headed for its steepest monthly drop since 2012.

A strong greenback makes commodities such as oil more expensive for buyers using other currencies, suppressing demand. There are also concerns OPEC's big producers are getting dragged into a price war.

"The market is asking how low the price must go before output is trimmed," said Bjarne Schieldrop, chief commodities analyst at SEB in Oslo.

(Additional reporting by Alexander Winning in Moscow and Sam Wilkin in London; Editing by Andrew Heavens)