Policy loosening by a trio of central banks failes to impress

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Policy loosening by a trio of major central banks failed to impress investors on Friday, pushing Spanish and Italian borrowing costs close to levels reached before last week's EU summit took measures designed to ease pressure on them.

China, the eurozone and Britain all loosened monetary policy on Thursday, signalling growing alarm about the world economy. But to little avail.

The euro was nursing heavy losses at $1.2377, near a five-week low of $1.2364, while Brent crude oil was down more than 70 cents a barrel at $99.98.

A U.S. jobs report, due at 12.30 pm GMT, is the day's big number and will give a guide to the extent of damage the euro zone's debt crisis is inflicting on the U.S. economy and whether the Federal Reserve may consider more action when it meets next at the end of the month.

"The U.S. jobs report will be the focal point today as a weak figure could signal additional stimulus by the Federal Reserve in their next meeting," said Nam Truong, a dealer at Capital Spreads in London.

Thursday's robust U.S. private employment data could have dampened such hopes, but a Reuters poll showed expectations were for non-farm payrolls to expand by just 90,000 jobs in June.

Ten-year Spanish government bonds yielded 6.90 per cent in early trading, a level which is not sustainable for Madrid indefinitely. Italian yields climbed to just shy of 6 percent.

The pan-European FTSEurofirst 300 index was down 0.2 per cent at 1,042.80 points in early trade, but was still up more than two percent for the week.

Reflecting the impact of the European Central Bank's decision to cut lending rates to 0.75 per cent and deposit rates to zero, German government bond yields were weaker with the yield on two-year debt briefly turning negative.

A weaker session in Asia, where Chinese growth worries are on the rise ahead of Q2 GDP data next week, pushed the MSCI world equity index down 0.1 per cent to 314 points, though it is on track for a gain of 0.6 per cent this week.

SLOWDOWN ALL ROUND

Japan's Nikkei share average also fell with investors unconvinced Thursday's tripartite monetary easing will jump start slowing global growth.

International Monetary Fund chief Christine Lagarde said the world economic outlook had deteriorated as both developed and big emerging nations show signs of slowing down.

China surprised markets with its rate cut, coming just four weeks after a previous reduction and ahead of economic data next week that includes second-quarter gross domestic product. It fed expectations that those figures will be weak.

Vice-Premier Wang Qishan said in comments published late on Thursday that China would have difficulty meeting its 10 percent trade growth target this year.

Crude oil prices were hit as the stimulus moves by central banks failed to allay investor concerns about demand, although supply worries stemming from a labour dispute in Norway are expected to check losses.

"The focus continues to be on the global economy and oil demand," said Victor Shum, a senior partner at oil consultancy Purvin and Gertz.

"China's rate cut was a surprise and although it was meant to stimulate, it was interpreted as a sign of more trouble in the economy and it didn't really inspire."

Gold remained on track for a second straight week of gains on Friday, though it was little changed from the day before as investors waited for the U.S. jobs data to provide fresh direction.