* ECB weighs up new easing
* Several 2-year yields hit record lows
* ECB report overshadows Russia-Turkey tensions
By Jamie McGeever
LONDON, Nov 25 (Reuters) - The euro and euro zone bond
yields sank on Wednesday after Reuters reported that central
bank officials are weighing up how to ease monetary policy
further in the coming weeks, including staggering charges on
banks hoarding cash or buying more debt.
Two-year yields in Germany and France - already well below
zero - plunged to new lows, the euro hit a seven-month trough
and the rally in stocks moved up a gear. ID:nL8N13I42U
The widening gap between euro zone and U.S. yields helped
propel the dollar to its highest level on a broad index basis
since March, which pushed oil and commodity prices sharply
lower.
These sweeping moves ahead of the European Central Bank's
policy meeting next week overshadowed the reverberations of
Turkey's shooting down of a Russian fighter jet this week, which
had earlier somewhat tempered investors' risk appetite.
"The ECB leaks the bazooka?" said Josh O'Byrne, currency
strategist at Citi in London.
"Following the very dovish speech from (ECB) President Mario
Draghi last week targeting higher inflation as quickly as
possible, an ECB overwhelm looks on the cards," he said.
The ECB meets on December 3 and is widely expected to loosen
policy via a further cut in the deposit rate or extending and
expanding its bond-buying stimulus to stave off the threat of
deflation.
The two-year German yield fell to -0.41 percent EU2YT=RR
and the two-year French yield to -0.33 percent FR2YT=RR . The
gap between two-year U.S. and German yields moved out to 134
basis points, the widest spread in over nine years.
All German government bond yields out to seven years are now
below zero.
The euro slid over a cent to a seven-month low of $1.0580
EUR= , and the dollar index against a basket of major
currencies .DXY rose to an 8-month high of 100.07.
CRUDE AWAKENING
European stocks rallied further, and at 1210 GMT the
FTSEuroFirst 300 index of leading shares was up 1.3 percent at
1,500 points .FTEU3 and Britain's FTSE 100 .FTSE was up 1
percent at 6,337 points.
Germany's DAX was up 1.5 percent at 11,097 points, almost
doubling its gains after the euro zone central banks report.
U.S. stock futures pointed to a rise of around 0.2 percent
at the open on Wall Street ESc1 , while earlier in Asia MSCI's
index of Asia-Pacific stocks outside of Japan .MIAPJ0000PUS
slipped a mere 0.05 percent.
The shooting down of the Russian warplane by Turkey on
Tuesday was not too far from investors' minds, although they
drew some comfort from the lack of escalation in tensions
between Russia and Turkey on Wednesday.
"The geopolitical issue has rapidly lost its importance
outside the Turkish borders as the risks of an escalating
military interaction are very low at this stage," said Ipek
Ozkardeskaya, strategist at London Capital Group.
Russia said on Wednesday it will send an advanced air
defence system to reinforce its air base in Syria and consider
cancelling a raft of joint business projects with Ankara after
one of its warplanes was downed.
The news from Turkey briefly sparked oil supply fears and
sent crude prices surging overnight to two-week highs. But the
market slumped in Europe as the dollar rallied.
U.S. crude CLc1 and Brent crude LCOc1 futures fell
around 2 percent to $42.09 and $45.16 a barrel, respectively.
Prices of metals such as zinc and copper resumed their
recent downtrend as the dollar rallied. This makes
dollar-denominated metals more expensive for buyers. MET/L
Industrial metals are seen remaining under pressure in the
long run with an expected Federal Reserve interest rate hike in
December likely to underpin the dollar.
In Britain the focus was on finance minister George
Osborne's latest push to lower the country's budget deficit
through a series of massive spending cuts. ID:nL8N13I3NN
This follows comments earlier this week from top Bank of
England officials that added weight to the view that interest
rates will be kept lower for longer.
"The fiscal squeeze is one reason the financial markets
expect such a time lag between a (U.S.) Fed rate increase and an
increase from the BOE," said Derek Halpenny, senior currency
strategist at BTMU in London.
"If Osborne sticks to his guns the pound may well remain
under downward pressure over the near-term."
Sterling was down slightly against the dollar at $1.5080
GBP= .
(Editing by Richard Balmforth; To read Reuters Global Investing
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