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ECB cuts euro zone rates for first time since 2019

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World stocks hit record high

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Euro rises against the dollar

By Marc Jones and Koh Gui Qing

NEW YORK/LONDON, June 6 (Reuters) - World stocks hit an

all-time high and the euro rose on Thursday after the European

Central Bank cut interest rates for the first time in nearly

five years, while signaling that further moves could take a

while.

ECB policymakers delivered their widely flagged

quarter-point cut to 3.75%, but markets were left feeling a

little deflated after the bank said it now does not expect

inflation to fall back to target until 2026.

The comments were enough to snip the pan-European STOXX

600's gains back to 0.7%, while the euro inched up to

almost $1.0890 against the dollar and government bond yields -

which reflect borrowing costs and move inversely to price -

ticked up too.

MSCI's 47-country main world index rose as

much as 0.3%, before trimming gains slightly. Wall Street,

however, went the other way, with the S&P 500 index down

0.2% after hitting an all-time high. The Dow Jones Industrial

Average was flat, and the Nasdaq Composite Index

dipped 0.3%, also down from an all-time high.

Chip maker Nvidia ( NVDA ) fell 2.4% after hitting a record

high, a day after crossing $3 trillion in market valuation.

Marchel Alexandrovich, a partner at Saltmarsh Economics,

said markets will now focus on whether the U.S. Federal Reserve

will cut rates in September.

The euro's gain, after a 2% rise over the last month, took

it to $1.0887, although most traders were sitting on their

hands. ECB President Christine Lagarde stressed at the start of

her post-meeting press conference: "We are not pre-committing to

a particular rate path."

Stronger-than-expected data over the last few weeks, plus

Thursday's increase in the ECB's in-house inflation forecasts,

have raised doubts about how many more rates cuts will be

justified this year.

"This was a cautious cut," said Samuel Zief, head of global

FX strategy at J.P. Morgan Private Bank. "We currently think

that September could be next. But (there is) no reason to expect

significant reductions any time soon with growth actually

picking up steam of late."

GOLDILOCKS STORY

The Bank of Canada pipped the ECB to become the first G7

country to cut rates in this cycle on Wednesday. The U.S.

Federal Reserve meets next week, although is not expected to

move until September, at the earliest.

"This move ahead of the Fed was not at all obvious just

three months ago," said Eric Vanraes, the head of fixed income

at Eric Sturdza Investments. "We still believe that the first

rate cut will come before the fourth quarter, in September."

By contrast, the debate at the Bank of Japan, which meets

the week after, will be about whether to raise rates, and when.

Canada's dollar trimmed some of the losses from its

post-cut dip on Thursday to stand at C$1.37 per U.S. dollar.

In the bond markets, Germany's 2-year government bond yield

, which is sensitive to policy rate expectations, rose

to as high as 3.037%. It hit 3.125% last Friday, its highest

since mid-November.

Benchmark 10-year U.S. Treasury yields were flat at 4.2851%,

although that was still near their lowest in two months, after

data this week hinted that the U.S. labor market is finally

cooling.

The data included private U.S. payrolls on Wednesday and a

report on Tuesday that showed job openings fell in April to

their lowest in more than three years.

Markets are now pricing nearly two quarter-point Fed cuts

again this year, with a September move seen as a 68% chance

compared to 47.5% last week.

"We're still in the 'Goldilocks' range, so bad economic news

has been good for equities, as Fed rate cuts are back on the

table," said Ben Bennett, Asia-Pacific investment strategist at

Legal and General Investment Management.

Investor attention will soon turn to the U.S. nonfarm

payroll report for May on Friday, with a Reuters poll of

economists expecting payrolls to have risen by 185,000 jobs.

"We need that to be around 100-150k to maintain the

Goldilocks narrative," Bennett said. "Much higher than that and

yields could move back up, but if we get zero or negative, then

we could be talking about a hard landing again."

In commodities, Brent crude futures rose as much as

2% to $79.97 a barrel, while U.S. West Texas Intermediate crude

futures rose 2.1% to $76.65.

Gold gained 0.7% to $2,371.1 per ounce after a 1%

rise previously, while the cryptocurrency bitcoin was at

$71,415, shuffling back towards March's record high.