ECB seen expanding stimulus amid Trump, Italy uncertainties

The pan-European STOXX 600 index rose 1.2 percent to its highest since January 6, also helped by gains in other cyclical sectors such as miners and autos.

BOND BOOST: U.S. government bond prices fell, sending yields higher.

At that meeting the European Central Bank is likely to extend its bond purchases beyond March and consider sending a formal signal that the program will eventually end, senior sources with direct knowledge of discussions have told reporters.

But concerns over Italy’s ailing banking sector remained in focus.

Between Brexit and the outcome of the recent USA presidential election, the global political environment in 2016 has taught investors to expect the unexpected. “So far we’ve seen that in the short-term the response to these uncertainties has been more muted than people expected”.

Last month’s victory by Donald Trump in the US election and the uncertainty generated by the recent Italian referendum, which prompted Premier Matteo Renzi to offer his resignation, will make the decision all the more straightforward, analysts say.

“(That’s) the best of both worlds for investors”. The Hang Seng in Hong Kong gained 0.5 percent.

Euro zone economic growth is shrugging off Britain’s decision to leave the European Union, and Germany, the bloc’s growth engine, seems to be picking up speed again.

If the European Central Bank does announce additional measures, the euro is set to weaken against both the pound and the U.S. dollar.

They said the dynamics of Canada’s growth are largely as anticipated and current monetary policy stance remains appropriate. However even if the euro sells off, we think it’s only a matter of time before the central bank announces a QE exit strategy and for this reason we believe the euro bottomed at 1.05. They slumped a day earlier after President-elect Donald Trump said he wants to reduce drug prices.

The ECB’s bond purchase changes came less than a week before the Federal Reserve’s policy meeting next Tuesday and Wednesday.

According to Investing.com’s Fed Rate Monitor Tool, 100% of traders expect the Fed to raise interest rates at its December 13-14 meeting.

Back in the currency market, New Zealand’s dollar was the biggest gainer amongst the major currencies.

That drop nudged the dollar down a touch to 113.73 yen while the dollar index dipped 0.05 percent. Asian shares were supported in part by the appointment of Iowa Governor Terry Branstad as ambassador to China.

The euro was last down 1.3 percent at $1.0614 after surging to $1.0875 after the ECB’s statement.

Japan’s Nikkei stock index ended 1.2 percent up at its highest closing level since December 2015. Unione di Banche Italiane slid 4% and is down 67% year to date and Intesa Sanpaolo (ISP.MI) slipped 3.4%, having seen a third wiped off its market value in 2016.

OIL: Benchmark U.S. crude oil added 12 cents to $49.89 per barrel in electronic trading on the New York Mercantile Exchange. Brent crude rose 0.7 percent to $54.23.

Neil Wilson, senior market analyst at ETX Capital, said: “We saw a vicious move in the euro on the release of the monetary policy statement, with the euro gaining a cent on the dollar before rapidly handing back those gains and turning negative”.