By Marc Jones
LONDON (Reuters) - The euro tumbled on Tuesday and the region's stocks and bonds jumped after the European Central Bank signalled it would speed up its 1 trillion euro bond-buying programme for the next two months ahead of an expected summer lull.
World stocks were already testing all-time highs after another jump in Chinese stocks and a record close on Wall Street, and European markets shot up after top ECB policymaker Benoit Coeure talked of adjusting the bank's buying programme.
He said that the speed of the recent spike in bond yields, which has effectively wiped out the benefits of QE, was worrisome and that the ECB could "moderately" increase its buying in May and June, and possibly in September, to ensure it doesn't fall behind on its target over summer.
That pushed the euro back below $1.12 for the first time in a week and the FTSEurofirst 300 jumped 1.2 percent as gains of as much 1.9 and 2 percent on Germany's DAX and in Paris outpaced a 0.4 percent rise on London's FTSE.
Bond yields, which move inversely to prices, also tumbled, with those on 10-year German Bunds down 7 basis points and Italian and Spanish equivalents down 9 basis points.
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"There is a sense the comments from the ECB indicate a growing push back against the sell-off in bond markets that's been in place for the past month or so, and a push back against both euro strength and market volatility," said Manik Narain, a UBS strategist.
The moves were compounded as France's central bank governor Christian Noyer, also an ECB member, said the bank was "ready to go further if necessary" with its easing measures, and came amid another mixed set of European data.
Germany's ZEW sentiment survey deteriorated far more sharply than expected in May against the backdrop of bumpy financial markets.
A small rise in core euro zone inflation, meanwhile, was offset by the UK where it turned negative for the first time since the 1960's. That knocked sterling as it fell for a third straight day against a broadly stronger dollar.
Fears of a Greek bankruptcy also rumbled in the background even as the country's top politicians vowed to conclude a cash-for-reform deal with its lenders.
"I think we are very close (to a deal) ... let's say in a week," Greek Finance Minister Yanis Varoufakis said in a TV interview on Monday night. "Another currency is not on our radar, not in our thoughts," he added.
German Chancellor Angela Merkel and France's leader Francois Hollande said at a meeting in Berlin that they both wanted Greece to stay in the euro, although Merkel stressed that Athens needed to speed up talks.
FINE CHINA
Wall Street, which closed at a fresh record high on Monday, was expected to add to the gains when it reopens later. [.N]
China's surging stocks and a jump in the New Zealand dollar after a rise in inflation, had dominated Asian trading.
The CSI300 index, already up over 30 percent this year, surged 3.4 percent and the Shanghai Composite Index rose 3.0 percent, as investors welcomed Beijing's 2015 guidelines for economic reform.
They prioritised a further opening of the country's capital market and a restructuring of state enterprises.
"You need a vibrant stock market to push forward economic reforms, whether it's about asset securitisation or industry consolidation," said Tian Weidong, analyst at Kaiyuan Securities in Xian. "With such a policy backdrop, investors are emboldened to stay in the market."
Japan's Nikkei also ended up 0.7 percent at a three-week high as the dollar nudged down the yen.
Expectations of more easing from the Bank of Japan kept the Japanese currency in check. The BOJ meets on Friday and is seen expanding its massive stimulus programme in October, according to most economists polled by Reuters.
Ukrainian and Russian tensions were also back in focus after Kiev unexpectedly passed a law allowing it to impose a 'debt moratorium'.
If it used the new power it would effectively refuse to pay its creditors, probably including Russia, which it owes $3 billion.
Among commodities, oil prices sagged for a second day running as the stronger dollar took its toll alongside oversupply concerns triggered by a jump in Saudi Arabian exports.
U.S. crude dropped about 0.6 percent trade to $59.04 a barrel, while Brent fell 0.8 percent to $65.75. [O/R]
Safe-haven gold, meanwhile, fell for the first time in six sessions, dropping about 0.2 percent to $1,220 an ounce. It had hit a three-month high a day early after disappointing U.S. economic data dented expectations of Federal Reserve rate hikes this year.
(Additional reporting by Sujata Rao, Editing by Hugh Lawson)