By Caroline Valetkevitch
NEW YORK (Reuters) - The euro fell 1 percent on Thursday on a darkening euro zone outlook, while global stock markets rallied as the European Central Bank chief pledged to beef up or prolong the bank's economic stimulus if necessary.
Oil prices also rose, following the rally in equities.
ECB President Mario Draghi's comments on the bank's bond-buying program came as the bank cut its inflation and growth forecasts for the euro zone, although he said no one on the bank's Governing Council had argued to add to the program now.
That helped to calm some jitters after weeks of market turmoil as investors gauge whether global monetary policy will be kept loose as central banks try to mitigate the recent market turmoil stemming from growing worries about China's economy.
The euro fell, however, surrendering most of its solid gains put up against the dollar since China devalued the yuan last month.
Against the dollar, the euro touched a two-week low of $1.1108 during Draghi's news conference. It was last off 1 percent at $1.1109. It was as high as $1.1332 earlier this week as investors spooked by the market turmoil in China moved heavily into the euro and yen.
"Draghi at his press conference raised the risk of additional monetary support by the central bank," said Omer Esiner, chief market analyst at Commonwealth Foreign Exchange in Washington. "We were expecting some dovish comments, and he delivered."
Friday brings the monthly U.S. jobs report, a key element in the Federal Reserve's decision on when to raise interest rates for the first time in nearly a decade.
The Fed, which meets on September 16-17, has said it will raise rates when it sees sustained economic recovery. While the labor market has strengthened, inflation remains below the Fed's 2 percent target.
MSCI's all-country stock index rose 0.8 percent, while the FTSEuroFirst leading index of 300 shares closed up 2.4 percent. Germany's DAX shot up 2.7 percent.
The Dow Jones industrial average was up 103.66 points, or 0.63 percent, at 16,455.04. The Standard & Poor's 500 Index was up 12.62 points, or 0.65 percent, at 1,961.48. The Nasdaq Composite Index was up 15.72 points, or 0.33 percent, at 4,765.69.
Helping the stronger tone, data released on Thursday showed new applications for U.S. unemployment benefits rose more than expected last week, but the underlying trend remained consistent with a strengthening labor market.
China's stock markets, the root of much of the global volatility in recent weeks, were closed on Thursday for the start of a two-day holiday.[
U.S. BONDS RISE
U.S. Treasuries prices rose after the dovish outlook from the ECB made U.S. government debt more attractive than European
counterparts. But caution ahead of Friday's monthly U.S.
employment report limited gains.
Benchmark 10-year Treasury notes were last up 7/32 in price to yield 2.166 percent.
In the energy market, Brent was up 74 cents at $51.24 a barrel, while U.S. crude rose $1.01 cents to $47.26 a barrel.
(Additional reporting by Jamie McGeever in London and Tanya Agrawal; Editing by Dan Grebler)
