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Bund yields edge higher again after biggest jump since

1990s

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Euro hits new 4-month high after ECB cuts rates

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Stock markets take a breather as trade war tensions simmer

(Updates paragraph 2 with ECB decision)

By Marc Jones

LONDON, March 6 (Reuters) - World financial markets kept

on a radical readjustment course on Thursday after U.S.

President Donald Trump's shakeup of the transatlantic

relationship spurred a seismic, half-a-trillion-euro shift in

German defence and infrastructure spending.

The European Central Bank cut its interest rates again, as

expected, and said monetary policy was becoming less

restrictive, which traders took to mean another cut in April

might not be a given - giving the euro another boost.

That would normally suck up traders' attention. But it was

just one of a myriad factors in play, with a global bond market

selloff still in full swing a day after the 10-year German Bund

yield - a major driver of worldwide borrowing costs - saw its

biggest rise since the 1990s.

Those Bund yields were up 6 basis points at

2.847%, having jumped as high as 2.929% on Wednesday. The euro

rose by as much as 0.5% after the decision to a 4-month high of

$1.0845, while European stocks also

took a breather after a 10% rally this year.

"The reality is that I still don't think the enormity of the

(German) news has got close to being fully comprehended and

digested by global investors yet," said Deutsche Bank's Jim

Reid, who estimated that Wednesday's Bund yield spike was the

biggest move since German reunification in 1990.

"This is a seismic shift of the most epic proportions and

perhaps only fast money and nimble investors have responded so

far."

The global implications had been evident overnight.

Japan's 10-year government bond yield, another key driver of

worldwide borrowing costs, had hit a near 16-year high, while

the U.S. 10-year Treasury note yield was climbing

again in early U.S. trading despite rising bets on more Federal

Reserve rate cuts following recent patchy data there.

Focus also remained on the global trade war after 25% U.S.

tariffs on imports from Mexico and Canada were imposed on

Tuesday along with fresh duties on Chinese goods.

The White House had said on Wednesday that Mexican and

Canadian carmakers would be exempted from their countries'

tariffs for one month as long as they complied with existing

free trade rules.

That lifted Asian markets overnight but Wall Street futures

pointed to another fall for the S&P 500 index when trading

resumes there. A difficult run of eight falls in the last 10

sessions has left it in the red for the year.

MSCI's broadest index of Asia-Pacific shares outside Japan

meanwhile had closed up 1.25% and Tokyo's Nikkei

finished 0.8% higher.

China's blue-chip index rose another 1.4% while

Hong Kong's Hang Seng Index surged over 3%, touching its

highest in three years and cementing a major world

market-topping 20% 2025 surge.

ECB RESPONSE

European leaders were holding an emergency meeting in

Brussels on support for Ukraine against Russia's invasion, after

U.S. President Donald Trump's suspension of military aid to Kyiv

this week fanned fears the region can no longer rely on U.S.

protection in place since World War Two.

The euro was steady at $1.08, just shy of a four-month peak

it had reached in early Asian trading. The single currency is on

course for a rise of more than 4% this week, its strongest

weekly performance since March 2009.

"This (ECB) meeting could be very interesting given the

current context," said Julien Lafargue, chief market strategist

at Barclays Private Bank.

Not only is the bank getting close to the so-called

"neutral" level of interest rates following its recent run of

cuts, but ECB President Christine Lagarde will most certainly be

asked about how the ECB intends to respond to the Europe-wide

increase in defence spending, Lafargue said.

In commodities, gold prices eased by 0.4% to $2,906 an ounce

ahead of Friday's non-farm payrolls report, which may offer cues

on the Federal Reserve's policy path.

Oil prices tried to catch a break after stumbling this week,

undermined by a larger than expected jump in U.S. crude stocks,

OPEC+ plans to increase output, and U.S. tariffs on key oil

supplies.

Brent futures were at $69.52 a barrel, up 0.35% on

the day, but still around three-year lows.

($1 = 0.9247 euros)