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Euro extends slide as European stocks rebound

London (AFP) – German and French stock markets rebounded strongly Wednesday after upbeat comments from ECB head Mario Draghi but the euro hit new multi-year lows on expectations of a US rate hike.

Frankfurt’s DAX 30 index hit a new record-high at 11,718.41 points before easing slightly to 11,702.69, a gain of 1.76 percent from Tuesday’s close.

The CAC 40 in Paris won 1.83 percent to stand at 4,971.26 points in afternoon deals.

London’s benchmark FTSE 100 index edged up 0.16 percent to stand at 6,713.56.

The euro slid to $ 1.0560 — the lowest level since March 2003. It later stood at $ 1.0587, down from $ 1.0698 late on Tuesday in New York.

“Rising expectations for US interest rates and an escalation of the Greek crisis could push the euro down to parity against the US dollar and beyond,” said Jonathan Loynes, chief European economist at Capital Economics.

European stocks were however getting a boost from “Draghi’s optimistic take on QE and its effectiveness on boosting inflation and economic growth in the months ahead,” said Markus Huber, senior analyst at Peregrine & Black trading group.

The European Central Bank’s massive bond purchase programme will not reduce the incentives for governments to reform as it will magnify the benefits measures undertaken, Draghi said Wednesday.

– Greece pays more to borrow –

The ECB has embarked on a policy of so-called quantitative easing or QE, under which it plans to buy 1.14 trillion euros worth of bonds over the next 18 months. The aim is to pump liquidity into the system so as to ward off deflation and spur growth in the single currency area.

But QE has its critics, particularly in Germany, who argue that it reduces the pressure on eurozone governments to get their finances and economies in order.

The yield on German, Italian and Spanish 10-year government bonds have fallen to record lows as a result of the massive bond-buying programme.

But Greek bonds are not benefitting from the decline in yields owing to a new spike in concerns over its finances as well as the exclusion of Greek debt from the QE programme.

Greece on Wednesday raised 1.3 billion euros in three-month treasury bills at higher interest in an ongoing scramble for cash.

The country’s debt agency said it had accepted the entire amount offered by creditors, paying 2.7 percent compared with 2.5 percent in an equivalent sale a month earlier.

Greece needs to find some 6.0 billion euros this month to repay maturing treasury bills and loans from the International Monetary Fund.

The new radical left government elected in January on an anti-austerity platform has received no money from Greece’s outstanding EU-IMF bailout because it is still in negotiations with the country’s international creditors on a new loan deal.

Wall Street meanwhile staged a mild recovery after deep losses in the prior session on worries about the rising dollar.

Five minutes into trade, the Dow Jones Industrial Average crept up 0.15 percent, while the broad-based S&P 500 added 0.17 percent and the tech-rich Nasdaq Composite Index edged up 0.06 percent.

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