China rate cut spurs markets on to new highs

New York reaction - markets rose on Chinese rate cut and ECB President's speech

The cut in Chinese interest rates and comments from Europe's central bank chief have lifted global markets.

The People's Bank of China cut its one year deposit rate to 2.75% from 3.0% to try to revive its economy.

Meanwhile Mario Draghi, President of the European Central Bank (ECB) said he would "step up the pressure" to stimulate Europe's struggling economy.

Within half an hour of opening, the Dow Jones Industrial Average rose almost 1% to a new record high of 17,866.00.

In the UK, mining stocks rose between 3% and 5% on the hope that better growth would help sales of raw materials to China.

The six biggest risers on the index were either oil or mining companies.

The Australian and New Zealand currencies also strengthened reflecting their dependence on trade with China.

The cut in Chinese rates, which took the markets by surprise, was the first since 2012, and comes into effect on Saturday.

The one-year lending rate will also be reduced from 6% to 5.6%.

On Thursday figures showed China's factory output contracting for the first time in six months.

Economic growth slowed to a five-year low of 7.3% last quarter.

Life in the slow lane - China cuts interest rates to boost growth

To offset the effect of lower rates on savers the bank said it would give banks the flexibility to offer higher deposit rates, up to 1.2 times the benchmark level, rather than 1.1 times.

Draghi comments

Also on Friday Mr Draghi, speaking in Frankfurt, suggested he was determined to use measures, such as large scale asset purchases, to ensure Europe doesn't slump into a new crisis.

He said: "We will do what we must to raise inflation and inflation expectations as fast as possible,"

Inflation in the countries that use the euro currency stood at just 0.4% last month, well below the ECB's target of 2%

If current efforts do not work, Mr Draghi said the ECB could "broaden even more the channels through which we intervene." For many that is a clear hint that the bank could soon starting buying government bonds.

The Eurozone economy barely escaped recession in the third quarter growing just 0.2% , compared with the second.

Germany, traditionally the continent's powerhouse, grew just 0.1%, after shrinking by the same amount in the previous quarter.

Stepping up the pressure - Draghi promises action

Shares in the main European stock markets hit an eight week high following the speech.

On the currency markets the euro fell more than 1% against both the dollar and the pound on Friday, as investors anticipated that increased asset purchases by the ECB would drive down returns.

China's growth

China has been anxious to reassure the world that it will not slow down further.

Earlier this month President Xi Jinping told chief executives at the Asia Pacific Economic Cooperation Summit that the risks faced by China's economy were "not that scary"

He said the government was confident it could head off the dangers.

He said even if China's economy were to grow 7 percent, that would still be at the forefront of the world's economies.

In June the World Bank said China was undergoing structural changes as the "drivers of economic growth continued to shift from manufacturing to services on the supply side, and from investment to consumption on the demand side,"