San Francisco Frontiers - Stocks surge on 'dovish' ECB rate hike

Investors had hoped the European Central Bank would reduce the amount of its rate hike, or even pause it over fears about the health of Credit Suisse and the wider banking system following the implosions of two US lenders.

But the central bank raised its main rates by half a percentage point, as it had previously pledged to do.

It did, however, drop a reference -- used in previous statements -- to the need to raise rates "significantly" going forward.

The Frankfurt-based central bank also increased its growth forecast for 2023, to 1.0 percent, while lowering the inflation forecast to 5.3 percent for this year.

Stock markets seesawed following the ECB's announcement.

European shares, which had risen earlier on relief that troubled banking giant Credit Suisse had secured a financial lifeline, fell but then quickly rebounded.

Wall Street opened lower, only to rise later in the morning.

"Investors have viewed this as a 'dovish hike' from the ECB, as the bank indicates that it is shifting to an entirely data-dependent approach," said from Matthew Ryan, head of market strategy at global financial services firm Ebury.

Dovish in monetary policy means favouring lower interest rates to maximise growth and employment, rather than pursuing a "hawkish" policy focused on raising interest rates to reduce inflation.

The half-percentage-point "hike sends a clear signal of confidence in the strength of the European banking sector," Ryan added.

In afternoon trading, Frankfurt climbed 1.2 percent and Paris advanced 1.8 percent. London rose 0.8 percent.

The Dow edged up 0.2 percent, while the broader S&P 500 index rose 0.8 percent and the tech-heavy Nasdaq Composite climbed 1.2 percent.

The euro rose against the dollar.

A day after hitting a record low, Credit Suisse rallied after it announced that it would borrow up to $54 billion from the country's central bank.

Its shares soared more than 30 percent at the open Thursday. They were up 17.9 percent in afternoon trading.

Other European banking giants including BNP Paribas and Commerzbank were also in the green, though Societe Generale and Deutsche Bank fell.

The Dow Jones US Banks Index was up 1.2 percent, but embattled First Republic Bank was down more than 20 percent.

The ECB rate hike is the first by a major central bank since markets were rocked by banking crisis fears, testing the eurozone institution's resolve to implement another hefty increase.

There is also much debate over whether the US central bank will continue with its rate tightening campaign.

The collapse of California lender Silicon Valley Bank (SVB) has been widely linked to the sharp rise in borrowing costs over the past year.

Some commentators expect US Federal Reserve officials to lift rates once more next week but possibly hold afterwards, while there is a growing belief that it could even announce cuts before the end of the year.

But the ECB's decision will also likely impact the thinking of Fed policymakers, said Naeem Aslam, chief investment officer at Zaye Capital Markets.

"The fact that the ECB has increased the rate by 50 basis points, the chances are now that the Fed is going to do the same as well," he said.

Data out Thursday did not help ease the difficult choice faced by Fed policymakers, with the strength of the US economy confounding its efforts to quash inflation.

Weekly first-time job claims fell back below 200,000 and housing starts climbed 9.8 percent month-on-month in February, while building permit applications jumped by double digits.

But other data showed firms still had downbeat expectations about business in the coming months and import prices edged lower month-on-month in February.

- Key figures around 1515 GMT -

London - FTSE 100: UP 0.8 percent at 7,406.25 points

Frankfurt - DAX: UP 1.2 percent at 14,913.27

Paris - CAC 40: UP 1.8 percent at 7,008.54

EURO STOXX 50: UP 1.6 percent at 4,099043

New York - Dow: UP 0.2 percent at 31,942.50

Tokyo - Nikkei 225: DOWN 0.8 percent at 27,010.61 (close)

Hong Kong - Hang Seng Index: DOWN 1.7 percent at 19,203.91 (close)

Shanghai - Composite: DOWN 1.1 percent at 3,226.89 (close)

Euro/dollar: UP at $1.0603 from $1.0578

Pound/dollar: UP at $1.2091 from $1.2055

Euro/pound: DOWN at 87.68 pence from 87.71 pence

Dollar/yen: UP at 132.68 yen from 133.45 yen

West Texas Intermediate: UP 0.2 percent at $67.75 per barrel

Brent North Sea crude: UP 0.4 percent at $73.96 per barrel

burs-rl/lth

J.Peterson--SFF