World stocks soar on surprise China rate cut

By David Gaffen

NEW YORK (Reuters) - Stock markets worldwide soared on Friday after China cut interest rates for the fourth time this year, just a day after the European Central Bank signaled that it is ready to increase the scale of its stimulus measures.

Shares across Asia, Europe and the Americas climbed, having already been boosted by Thursday's message from ECB chief Mario Draghi that the central bank was ready to adjust "the size, composition and duration" of its QE programme.

Wall Street rallied, with the S&P 500 gaining 0.7 percent to reach its highest level since Aug. 20, which marked the beginning of a selloff initially sparked by weak data out of China.

Technology shares rallied, led by gains in Alphabet, Amazon and Microsoft, after the three companies reported results. The former two hit new records, while Microsoft rose to a 15-year high.

The Dow Jones industrial average rose 109.6 points, or 0.63 percent, to 17,598.76, the S&P 500 gained 18.1 points, or 0.88 percent, to 2,070.61 and the Nasdaq Composite added 92.72 points, or 1.88 percent, to 5,012.77.

Long-dated government debt yields rose, as the gains in equities reduced the appeal of safe-haven bonds. China's rate cut did not move commodities investors to bid up oil prices, which were flat to lower.

China's surprise move saw it cut its benchmark one-year lending rate by 25 basis points to 4.35 percent and lower big banks' reserve requirement ratio by 50 basis points to 17.5 percent.

The FTSEurofirst was up 2 percent and added to what will be a fourth-straight week of gains for MSCI's 45-country All World index.

In the FX markets, the offshore yuan sagged to its lowest in a month, while the euro stayed below $1.11 to put the dollar on course for its biggest weekly rise against major currencies since late May.

"It is basically throwing more fuel into the global risk rally after Draghi's pretty bold moves yesterday," said Alvin Tan, an FX strategist at Societe Generale, about the China cut.

Global bond investors backed off safe-haven debt in the U.S. and Germany. Additional Chinese stimulus could help global growth, boosting yields on benchmark U.S. treasuries and European debt. The 10-year U.S. Treasury bond fell 16/32 in price to boost its yield to 2.087 percent. [GVD/EUR]

Separately, the prospect of more ECB stimulus by the end of the year saw Italian and Spanish two-year government bond yields both turn negative for the first time ever, meaning investors effectively pay to hold them rather than get paid.

Greece's bond curve was close to normalizing, having been distorted for months following its political crisis that saw it teeter on the brink of leaving the euro.

"Draghi has come out and kitchen-sinked the whole thing, everything is now on the table," said Gavin Friend, a strategist at National Australia Bank in London.

Brent was flat at $48.09 a barrel, while U.S. crude lost 1 percent to $44.93.

(Editing by Meredith Mazzilli)