Equity markets in Europe accelerated their gains and Wall Street opened up on the move by the E.C.B., which came after the Organization for Economic Cooperation and Development earlier this week added its voice to the chorus calling for lower borrowing costs to stimulate growth. Bond prices fell.
Hours later, amid continued uncertainty over his political future, Prime Minister George Papandreou of Greece called off his plan to hold a popular vote on Greece’s new loan deal with foreign creditors. The referendum was seen as a risky move that could have had serious repercussions for the entire euro zone.
Mr. Papandreou reversed course after meeting with his French and German counterparts in the south of France, where President Obama and other leaders from the Group of 20 nations were holding a summit meeting focused on the European sovereign debt crisis.
The Euro Stoxx 50 index, a barometer of euro zone blue chips, closed up 2.5 percent, with Germany’s DAX up 2.8 percent and the CAC 40 in Paris up 2.7 percent. The FTSE 100 index in London rose 1.1 percent.
At 4 p.m., the Standard Poor’s 500 index was up 1.9 percent, the Dow Jones industrial average gained 1.8 percent, and the Nasdaq rose 2.2 percent.
Treasury prices fell. The United States Treasury’s benchmark 10-year note was up to 2.063 percent in yield from 1.99 percent on Wednesday.
Investors are closely watching some of the more highly indebted countries with struggling economies in Europe.
The Italian bond yield rose to a high of 6.353 percent on Thursday before pedaling back to 6.167. Spanish bond yields were 5.463 percent, slightly higher than on Wednesday.
“It is obvious that the E.C.B. has caught the crisis virus and is trying everything it can to prevent a full-fledged recession,” Carsten Brzeski, an economist with ING in Brussels, wrote in a report.
The question now, he added, “is whether the E.C.B. is also willing to do everything to prevent a further escalation of the sovereign debt crisis, becoming the unconditional lender of last resort of the euro zone.”
The sovereign debt troubles have overshadowed global markets for more than a year. Most recently, equities markets have bounced around since an agreement reached in Europe last month, staging a strong rally before falling back as uncertainty grew about the details of the plan.
While the latest developments in Greece were seen as supportive for stocks, “the big thing was the European rate cut and that is what is driving the market,” said Doug Cote, chief strategist at ING Investment Management. “Investors are going to start nibbling around and going back to risk.”
The E.C.B had raised its benchmark interest rate twice this year, to 1.5 percent from 1 percent. On Thursday, the bank cut it to 1.25 percent.
Stanley Nabi, the chief strategist at Silvercrest Asset Management Group, said the E.C.B. had made a mistake when it raised rates, and was now correcting it in the context of a rapidly deteriorating situation in Greece and economic troubles in Europe.
“To an increasing degree every one of the countries in the euro zone is now experiencing a sluggish economy or is on the precipice of a recession,” he said. “I think what they are trying to do is just in case Greece pulls out of the euro zone or is thrown out, they want to build a moat around the other countries so that it won’t have a very deep impact on the global economy and European economies.”
Asian shares closed mostly lower. The Sydney market index S.P./ASX 200 fell 0.3 percent. In Hong Kong, the Hang Seng index fell 2.5 percent. Shanghai bucked the trend, with the composite index rising 0.2 percent. Tokyo markets were closed for a national holiday.
Officials meeting in Cannes were grappling with the growing possibility that Greece will leave the euro zone, leaving a trail of scorched lenders in its wake and possibly shifting the focus of market turmoil to bigger countries like Italy and Spain. But even as they address those questions, the disarray in Europe threatens to weigh more broadly on the global economy.
On Wednesday, the Federal Reserve offered a sobering outlook for growth in the United States, predicting the economy would expand 2.5 percent to 2.9 percent in 2012, down from its prior forecast of 3.3 percent to 3.7 percent. It said the unemployment rate would probably remain at 8.5 percent or above through the end of next year.
The euro was at $1.3845 from $1.3747 late Wednesday in New York.
David Jolly reported from Paris. Jack Ewing contributed reporting from Frankfurt, and Rachel Donadio and Niki Kitsantonis contributed reporting from Athens.
Article source: http://feeds.nytimes.com/click.phdo?i=9a94244d23ba369e646eaf8d2452a365
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