GLOBAL MARKETS-Draghi shock hits euro, boosts stocks

* European stocks rise 0.7% after Draghi's speech
* Global stocks in tight range ahead of Fed's policy meeting
* Oil extends fall, growth woes outweigh Middle East
concerns
* Dollar, sterling both steady
* Aussie stocks rise, AUD slides as RBA flags further easing

By Thyagaraju Adinarayan
LONDON, June 18 (Reuters) - European shares rallied and the
euro took a sharp hit on Tuesday in a knee-jerk reaction to
European Central Bank President Mario Draghi's comments
indicating a possibility of new rate cuts or asset purchases.
The euro fell 0.24% to 1.1191 as of 0845 GMT after Draghi
said the ECB will need to ease policy again, if inflation
doesn't head back to its targets, and that there was still
"considerable headroom" to do it. Those signals come a day ahead of the widely anticipated
U.S. Federal Reserve policy decision, where expectations are
running high that Draghi's counterpart Jerome Powell will likely
lay the groundwork for a rate cut later this year. "In just a few months, the market has turned from being
guided by the Fed to actively guiding the Fed," wrote interest
rate strategists at Bank of America Merrill Lynch.
The U.S. central bank is likely to leave borrowing costs
unchanged, but markets are almost fully pricing in a
25-basis-point rate cut for July.
The meeting will also provide the most direct insight yet
into how deeply policymakers have been influenced by the
U.S.-China trade war. FED/DIARY
The impact of U.S. restrictions on exports to China is
already reflecting in Europe with German silicon wafer maker
Siltronic WAFGn.DE warning that the spat would hit its sales
and profitability.
The warning knocked European technology stocks, but a sharp
reversal in the euro and rate cut signals drove the pan-European
STOXX index .STOXX 0.7% higher as of 0837 GMT.
In Asia, MSCI's broadest index of Asia-Pacific shares
outside Japan .MIAPJ0000PUS edged up 0.6%, while Japan's
Nikkei .N225 dipped 0.7%. MSCI's gauge of stocks across the
globe .MIWD00000PUS rose 0.15%, boosted by Europe.
"Markets have been very tentative over the last few
sessions, trading largely sideways ... oil dropping and gold
rising is also an ominous sign," said John Woolfitt at Atlantic
Markets.
Oil prices dipped 0.2% on Tuesday on global growth worries,
although losses were capped by tensions in the Middle East after
last week's tanker attacks. O/R
Acting U.S. Defense Secretary Patrick Shanahan announced on
Monday the deployment of about 1,000 more troops to the Middle
East for what he said were defensive purposes, citing concerns
about a threat from Iran. The dollar index, tracking the greenback against six major
peers, is holding tight at two week highs.
The Australian dollar AUD=D4 fell to a fresh five-month
low of $0.6830 after minutes from the Reserve Bank of
Australia's June meeting showed policymakers thought it may have
to ease again to push down unemployment and revive wages and
inflation. The central bank cut rates to a record low of 1.25% earlier
this month to support the slowing economy.
Meanwhile, sterling steadied GBP=D3 after hitting 5-1/2
month lows as traders waited for news on the contest for the
leadership of the ruling Conservative party.
"The fact that Boris Johnson will most likely become the new
prime minister hangs like a sword of Damocles over the trend of
the pound. With this in mind, investors are currently rather
reluctant to place too much trust in the currency," said
Marc-André Fongern, a strategist at MAF Global Forex in
Frankfurt.
In the developing world, stocks were set to snap a four-day
losing run on Tuesday, while emerging markets currencies edged
firmer against the dollar as cautious optimism crept into
markets ahead of the Fed meeting.
Inflation in the euro zone slowed to 1.2% in May, the lowest
rate in more than a year, as price growth in the energy and
services sectors slackened. <^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^
Wall Street asks when, not if, the Fed will cut rates https://tmsnrt.rs/2IpbACq
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