By Dhara Ranasinghe and Jamie McGeever
LONDON (Reuters) - The euro and euro zone bond yields jumped on Thursday after European Central Bank president Mario Draghi said the bank's policies were working, the economic recovery was continuing and inflation would pick up eventually.
The euro flirted with $1.14 and Germany's 10-year yield hit its highest in over a month as investors interpreted Draghi's comments to reporters after the bank left policy unchanged as slightly less dovish than expected.
The rise in the euro and bond yields led the region's stocks to extend their losses, with the FTSEuroFirst 300 index of leading shares down around 1 percent.
U.S. stock futures pointed to a slightly lower open on Wall Street (ESc1).
"There was some limited expectation of a further move on asset purchases and interest rates. But there were no further measures and they did not discuss 'helicopter money'," said Neil Jones, head of FX hedge fund sales at Mizuho in London.
"He's basically saying there will be no more action, for now at least."
The euro rose as high as $1.1394
German 10-year Bund yields
The FTSEurofirst 300 index earlier touched its highest level since early January before falling.
"We've had a great run-up in the last few weeks and we're now just starting to pause for a bit," said Terry Torrison, managing director at Monaco-based McLaren Securities.
World stock markets hit their highest level in almost five months before easing back (MIWD00000PUS).
OIL SURGE
But Draghi also left the door open to further easing, adding that the ECB would act to ward off any unnecessary tightening in financial conditions, a possible reference to the higher euro.
The tone in markets remained generally upbeat. Oil prices (LCOc1) rose to a five-month high as the International Energy Agency said that 2016 would see the biggest drop in non-OPEC production in a generation.
U.S. and Brent crude futures (CLc1) (LCOc1) have gained around 70 percent since the lows reached in January and February. Both benchmarks were last down around 0.5 percent, however, at $43.95 and $45.60 a barrel, respectively.
"It looks like the trough in oil is now behind us," said Chris Scicluna, head of economic research at Daiwa Capital Markets.
Oil's rally resonated across world markets, with emerging market stocks rising to 5 1/2-month highs and Russian shares racing to record highs.
In Asia, MSCI's broadest index of Asia-Pacific shares outside Japan (MIAPJ0000PUS) rose 0.8 percent, brushing against its highest since early November. Japan's Nikkei (N225) gained 2.6 percent and the MSCI world equity index (MIWD00000PUS) rose to its highest level since December.
Commodity-linked currencies held firm. The Australian dollar
The Swedish crown gained to its highest level against the euro (EURSEK=) since March 2015 after the Riksbank kept its key interest rate unchanged at -0.5 percent, as expected, and extended its bond-buying program.