Stocks slide as yen, euro gains question policy thrust

By Jamie McGeever

LONDON (Reuters) - The dollar slid to its lowest against major currencies in well over a year on Tuesday, a move led by further gains in the yen that threw an uncomfortable spotlight on central banks' attempts to boost growth through aggressive policy easing.

Australia's central bank joined the growing line of those adding stimulus, surprising many investors by cutting interest rates to a record low of 1.75 percent. That hit the currency but lifting the country's shares.

Almost every other major stock market around the world fell. MSCI's broadest index of Asia-Pacific shares outside Japan hit a three-week low, Europe's major indices shed as much as 2 percent and emerging market stocks fell 1.2 percent <.MSCIEF>.

U.S. futures pointed to a fall of almost 1 percent at the open on Wall Street .

European financials fell more than 3 percent, hit by a string of weak first quarter earnings reports from banks and the euro's burst to an eight-month high above $1.16. European bank stocks are down more than 20 percent so far this year.

Shares in German lender Commerzbank fell almost 10 percent after profits slumped in the first quarter.

"The numbers for the first quarter did not come in well ... however external factors that have also hit other banks hard appear to be the main reason for that," said Landesbank Baden-Wuerttemberg analyst Ingo Frommen.

Shares in Swiss bank UBS were down 8 percent, also after first quarter results.

Europe's FTSE 300 index of leading 300 shares and Germany's DAX shed almost 2 percent <.GDAXI>, both falling to their lowest in nearly three weeks.

In currency markets the yen rallied towards 105 per dollar, its highest in 18 months .

It was as low as 122 a few months ago, and the sharp gains since will do nothing to relieve deflationary pressures in Japan.

The dollar index , a measure of the dollar's value against a basket of major currencies, fell to 92.00. It was last there in January 2015.

The yen has accelerated its ascent since the Bank of Japan surprised markets last week by keeping monetary policy unchanged in the face of growing headwinds for its economy.

U.S. YIELDS FALL

Japan is in the middle of its Golden Week series of holidays. Markets were closed on Friday and will be closed from Tuesday to Thursday this week.

In Australia, stock markets cheered the rate cut with the benchmark index <.AXJO> easily the outperformer in Asia and extending gains to close up more than 2 percent on the day.

The Australian dollar dropped sharply, falling below 0.76 against the greenback from 0.77 earlier.

Bond yields fell across the board, with the fall in U.S. Treasury yields outpacing the decline in European yields. The U.S. curve was down as much as 6 basis points, and the benchmark 10-year yield was at 1.81 percent .

After raising interest rates in December for the first time in nearly a decade, the Federal Reserve held monetary policy steady last week. While it kept the door open to a hike in June, it gave no signal that it was in a hurry to tighten further given the economy's slowdown, even as the labour market has improved.

"The Fed still thinks growth will be just over 2 percent this year but, on the evidence of Q1, it seems more likely that the euro zone will scale 2 percent, not the U.S.," said Steve Barrow, head of G10 strategy at Standard bank.

"The upshot is that market expectations for U.S. growth might be too high - as investors take their cue from the Fed's forecasts - while those for the euro zone are too low."

Crude oil prices lost ground, with U.S. crude futures down 1 percent at $44.32 a barrel.

Spot gold got a boost from the weak dollar, briefly rising above $1,300 an ounce.

(Reporting by Jamie McGeever; editing by John Stonestreet)