Shares rise, euro falls as ECB easing bets mount

LONDON - Stocks rose and the euro hit its weakest in more than two years on Wednesday, a day before a crucial European Central Bank meeting that may pave the way for more monetary easing in the euro zone.

The dollar touched its highest against a basket of six major currencies since 2009.

Recent disappointing economic indicators from Europe have stoked investor concerns about the threat of deflation amid weak global growth, though this has also been offset by the prospect of more central bank intervention that would cheer markets.

Purchasing managers' surveys of the euro zone's service sector pointed on Wednesday to the tough task ahead for policymakers as business activity across the bloc grew less than expected last month, suggesting the region's economy could contract again early next year.

"There isn't a strong catalyst to help fuel the rally at the moment (but) this could change with the ECB tomorrow and Friday's (US) payroll figures," Saxo Bank trader Andrea Tueni said. "(ECB head Mario) Draghi would please investors with some sort of timetable for quantitative easing, but even if he just repeats the ECB's strong commitment to act, it could be enough to spark a Santa Claus rally."

The pan-European FTSEurofirst 300 index .FTEU3 was up 0.2 per cent at 0854 GMT (03:54 a.m. EST), though top benchmark indexes in Britain and France were down slightly.

The oil price LCOc1 rebounded above $71 a barrel as a volatile market searched for a floor after the price fell nearly 40 per cent since June, while the dollar hit its highest since March 2009 as US Federal Reserve officials painted an upbeat picture of the world's biggest economy.

Sterling rose after better-than-expected data from the UK as the market awaited British Finance Minister George Osborne's half-yearly budget update later on Wednesday. He was expected to pledge to wipe out the underlying budget deficit in three years, part of a plan to eventually offer generous income tax cuts.

German bund futures FGBLc1 were firmer as core bond yields fell, with Italy's borrowing costs hitting a new record low of 2 per cent.

Nordic shares were buoyed by news that telecom operators Telenor (TEL.OL: Quote, Profile, Research, Stock Buzz) and TeliaSonera (TLSN.ST: Quote, Profile, Research, Stock Buzz) would merge their Danish operations. Both stocks were up around 1.7 per cent.

The Russian rouble's continuing slide added more pressure on companies exposed to Eastern Europe: Germany's Adidas (ADSGn.DE: Quote, Profile, Research, Stock Buzz) fell 2.7 per cent after a broker downgrade from Barclays warned that the company's exposure to the rouble would probably eat into profits through 2015.

The MSCI Emerging Market index .MSCIEF was down 0.3 per cent, with the stronger dollar and oil's recent slide keeping pressure on emerging-market currencies.

Brent crude LCOc1 was firmer at $71.12 per barrel while US crude also rose to around $67.65, stabilizing after hitting multi-year lows on a supply glut and fears of cooling demand.