World stocks and the euro gained slightly on Thursday after the European Central Bank cut its main interest rate to a record low, but fears for what may emerge from a crucial EU leaders summit aimed at quelling the bloc's debt crisis limited moves.
The ECB's 25 basis point rate cut was in line with market expectations and confirms growing concerns over the impact of the euro zone debt crisis on the region's economic outlook.
German bond futures pared gains immediately after the rate cut and U.S. government debt prices turned slightly lower, while the euro rose. The MSCI All-Country World Index was barely changed while Europe's FTSEurofirst 300 pared gains slightly to stand up 0.4 percent.
U.S. stocks looked set to open moderately lower.
"There is nothing to get excited about with this decision, it was very much as expected," said Michael Derks, chief strategist at FX Pro.
Interest will now focus on what new ECB president Mario Draghi has to say about help for the region's troubled banks, and on its plans to buy bonds issued by the euro zone economies struggling with high debt.
Draghi's comments will set the stage for a critical euro zone summit that starts with a dinner on Thursday night.
Officials have told Reuters European Union leaders are likely to decide to bring forward the launch date of the euro zone's permanent bailout fund, the European Stability Mechanism (ESM), to 2012 from the initially planned mid-2013. A proposal to give the ESM a banking licence was said to be off the table.
A senior official said agreement is also expect to lend 150 billion euros to the IMF via bilateral loans from their central banks – read by markets as a low number.
"What will be crucial for markets is whether the summit will deliver enough for the ECB to act (to support euro zone governments' borrowing)," said George Saravelos, G10 FX strategist at Deutsche Bank.
France and Germany planned to lobby conservative European leaders to back a plan to defuse a crisis now stretching back more than two years. Paris and Berlin need to win backing quickly for their plan to amend the European Union's Lisbon treaty to toughen budget discipline, if they are to have it ready as they hope by March.
"I have the feeling that euro zone politicians know what is at stake," Carsten Brzeski, senior economist for ING, told Reuters Insider.
"I think they would try to do really everything to get their act together and to come off with some tangible results at the end of this summit," he said.
The euro which fell to $1.33980 during the morning session was virtually unchanged around $1.3410.
The euro had risen in the Asian session after the Nikkei business daily said the G20 was preparing a $600 billion lending facility for the IMF to help Europe, but the effect faded after it was denied by G20 and IMF officials.
The MSCI All-Country World Index, which has risen nearly 9 percent since the start of last week, mainly on hopes that the threat of financial meltdown would force European leaders to come up with a coherent plan to save the euro.
The Bank of England also held interest rates unchanged at 0.5 percent and left its target for asset purchases unchanged as the euro zone debt crisis threatens to tip Britain back into recession.
"Despite the very real and growing risk that the UK economy is headed back toward recession and could well contract in the fourth quarter, the Bank of England had clearly indicated that it considered it best to hold fire," said Howard Archer of IHS Global Insight.
