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Dollar soars and Wall Street gains as ECB holds off on rate hikes

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Bank notes of different currencies are photographed in Frankfurt, Germany, in this illustration picture

Bank notes of different currencies, including Euro, U.S. Dollar, Turkish Lira or Brazilian Reais, are photographed in Frankfurt, Germany, in this illustration picture taken May 7, 2017. REUTERS/Kai Pfaffenbach/Illustration

By Nick Brown

NEW YORK (Reuters) - The U.S. dollar rose more than a penny against a basket of major currencies as the euro cratered, and U.S. stocks closed higher on Thursday, as the European Central Bank signalled interest rate hikes were a long way off.

The bank's unexpectedly dovish decision overshadowed its statement that it aimed to wrap up its crisis-era stimulus programme at the end of this year.

The ECB now plans to reduce monthly asset purchases between October and December to 15 billion euros until the end of 2018 and then conclude the programme.

Investors, though, seized on comments indicating that interest rates would stay at record lows at least through the summer of 2019, and some analysts believed it may be longer, with ECB President Mario Draghi's term due to expire at the end of October 2019.

The U.S. Federal Reserve on Wednesday decided to raise rates by a quarter of a percentage point, creating "a widening rate differential between the U.S. and Europe, and the dollar is the beneficiary," said Ed Egilinsky, head of alternative investments at Direxion in New York.

The euro (EUR=) touched its steepest one-day drop against the U.S. dollar since June 2016, and was down 1.75 percent at 1.1583.

The dollar index (.DXY), which measures the greenback against six other top currencies, rose 1.17 percent.

Ten-year government bond yields in Germany, the euro zone benchmark, fell around 6 basis points to 0.422 percent compared with Wednesday's close .

Oil markets, pressured by the strengthening dollar and fears that OPEC countries could decide to increase output at a meeting next week, ended mixed.

West Texas Intermediate (WTI) crude oil futures (CLc1) settled at 66.89 per barrel, up 0.38 percent, while Brent (LCOc1)went the other way, settling down more than 1 percent at $75.94.

"The independent show of WTI strength is merely a catchup process to the higher priced products and Brent values," Jim Ritterbusch, president of Ritterbusch and Associates, said in a note.


EQUITIES STRONG

Benefiting from the euro zone dovishness: stock markets on both sides of the Atlantic.

Two of Wall Street's three main indexes closed in the black, with technology stocks leading the charge on the benchmark S&P 500. Helping boost stateside equities was a Commerce Department report showing retail sales rose 0.8 percent last month, the biggest advance since November 2017.

The Dow Jones Industrial Average (.DJI) fell 25.89 points, or 0.1 percent, to 25,175.31, but the S&P (.SPX) gained 6.86 points, or 0.25 percent, to 2,782.49 and the Nasdaq Composite (.IXIC) added 65.34 points, or 0.85 percent, to 7,761.04.

The ECB decision sent the pan-European FTSEurofirst 300 index (.FTEU3) up 1.25 percent, buoyed by big gains in interest rate-sensitive sectors like autos and utilities.

In U.S. Treasuries, benchmark 10-year notes last rose 12/32 in price to yield 2.9351 percent, from 2.979 percent late on Wednesday.

The 30-year bond last rose 30/32 in price to yield 3.0545 percent, from 3.102 percent on Wednesday.

LOOKING AHEAD

As the Fed and the ECB provided much of the week's central bank fireworks, the Bank of Japan began a two-day policy meeting, though virtually no one was forecasting changes to its stimulative policy given recent signs of slowing growth.

Another issue that will keep investors in check is concern about U.S. threats to impose tariffs on $50 billion of Chinese goods. U.S. President Donald Trump was planning to meet with trade advisers to decide whether to activate the tariffs..

CBOT corn and soybean futures tumbled as uncertainty about tariffs and favourable crop weather in the U.S. Midwest prompted funds to liquidate big long positions. CBOT July corn (1CN8) fell to its lowest since mid-January, and front-month soybeans (Sc1) dipped to a 9-1/2-month low.

In a rare merging of the sports and trading worlds, markets are gearing up for football's World Cup in Russia, where time zone differences mean more matches during European, U.S. and Latin American trading hours than any previous tournament.

A study done during the last World Cup with similarly timed games, the 2010 finals in South Africa, showed trading volumes on share markets dropped by a third on average when matches were on and 55 percent when a market's own team played.


(Additional reporting by Marc Jones, Richard Leong and Ayenat Mersie; Editing by Nick Zieminski, Bernadette Baum and Jonathan Oatis)