GLOBAL MARKETS-Stock rebound runs out of steam despite emergency BoE cut

* BoE announces surprise 50 bps cut to tackle coronavirus
shock
* Move raises pressure on ECB to act on Thursday
* European shares follow Wall Street higher but rebound
small
* Oil falls after Saudi Aramco announces more production
* Graphic: World FX rates in 2020 http://tmsnrt.rs/2egbfVh

By Tommy Wilkes
LONDON, March 11 (Reuters) - The rebound in stocks ran out
of steam on Wednesday despite the Bank of England joining other
central banks in cutting interest rates, as investors weighed up
whether coordinated monetary and fiscal stimulus could counter
the shock from coronavirus.
The surprise move from the BoE, which -- on the day that
Britain's budget opened the taps on spending -- also announced
measures to support bank lending, initially lifted shares after
a lacklustre session in Asia. Wall Street had rallied sharply on Tuesday, helping reverse
some of Monday's brutal losses, but that did not translate into
improved sentiment on Wednesday as scepticism grew about the
stimulus package announced by Washington to fight the epidemic.
By 1100 GMT, European stock gains had fizzled as caution set
in. The FTSE 100 .FTSE fell 0.4% after earlier being up more
than 1%, the Euro Stoxx .STOXXE was 0.09% lower and Germany's
DAX .GDAX down 0.06%.
U.S. stock futures ESc1 dropped 3.32%. As of Tuesday's close, $8.1 trillion in value has been
erased from global stock markets in the recent rout.
The MSCI all-country index .MIWD00000PUS has lost more
than 15% of its value since it peaked on Feb. 12, and was 0.38%
lower on Wednesday.
With the Federal Reserve having already cut rates this
month, the pressure is now on the European Central Bank to act
when it meets on Thursday.
"It is the only thing central banks can do in a public
health crisis," said Neil Dwane, global strategist and portfolio
manager at Allianz Global Investors. "They are trying to take
the shackles off the banks to ensure we don't get a cash
crunch."
The BoE, which cut rates by 50 basis points to 0.25%, did
not announce new quantitative easing measures but it did launch
a new scheme to support lending to small businesses. The UK
finance minister began presenting his first annual budget
shortly after 1230 GMT.
Italy, which is on lockdown in an attempt to slow new
infections, earmarked $28.3 billion to soften the economic
impact. After a decade of extraordinary monetary policy, investors
say the impact of easier policy has clear limits and increased
government spending must bear the brunt of the policy response
to the economic consequences of the outbreak.
"For the ECB their problem is that there is even more
pressure because they face the third-largest euro zone economy
-- Italy -- in dire straits," Dwane said.
A key gauge of long-term euro zone inflation expectations
dropped to another record low on Wednesday, in what analysts
said suggested investors were positioning for deflation risks.
DECLINING DOLLAR
Sterling initially fell sharply following the BoE decision
before rebounding. It was last up 0.5% at $1.2938 GBP=D3 but
down 0.3% versus the euro at 87.67 pence EURGBP=D3 .
The dollar resumed its decline against the yen JPY=EBS ,
the Swiss franc CHF=EBS and the euro EUR=EBS , weighed down
by uncertainty about the U.S government's response and the drop
in U.S. Treasury yields. The greenback remained significantly
above levels seen on Monday, however.
Benchmark U.S. 10-year Treasury yields US10T=RR fell 7
basis points to 0.684%, still more than double Monday's record
low yield of 0.3180%.
Market participants largely expect the Fed to cut rates for
the second time this month at next week's scheduled policy
meeting, after it surprised investors with a 50-basis-point cut
last week. FEDWATCH
German government bond yields rose DE10YT=RR after the BoE
cut supported sentiment, while Italian yields IT10YT=RR --
which had shot up on worries the country with Europe's worst
outbreak of the virus is sliding into a recession -- tumbled as
much as 20 basis points as bets on ECB stimulus grow.
Karen Ward, Chief Market Strategist for EMEA at JP Morgan
Asset Management, said all eyes were now on British finance
minister Rishi Sunak, who announced a big rise in spending to
help businesses and households through the coronavirus epidemic.
"Investors may be comforted by the fact that policymakers
are willing to deploy their full ammunition -- moving a step
closer to helicopter money," she said.
A radical argument for fiscal policy to create money and
hand it out to the public is sometimes referred to as
"helicopter money".
U.S. crude CLc1 slid 3.67% to $33.09 per barrel, while
Brent crude LCOc1 dropped 3.9% to $35.77 after Saudi Aramco
announced plans to raise its production capacity at the same
time as the coronavirus was set to weaken demand. On Monday, oil prices plunged after the collapse of
coordinated output cuts by Saudi Arabia, Russia and others.
Spot gold XAU= rose 1% to $1,665 per ounce as investors
sought safety in the precious metal. GOL/

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