A huge euro logo is pictured next to the headquarters of the European Central Bank (ECB) before the bank's monthly news conference in Frankfurt August 7, 2014. The European Central Bank left interest rates unchanged on Thursday, holding off fresh policy action as it prepares to launch fresh funding for banks next month that it hopes will lift inflation from rock-bottom levels.

The euro was deep in the red on Friday, having suffered its steepest fall in three years after the European Central Bank stunned markets by cutting interest rates and embarking on a trillion-euro asset-buying binge.

The aggressive shift sent short-term bond yields into negative territory in Germany, France, the Netherlands and Austria, giving investors an overwhelming incentive to sell euros for higher-yielding assets elsewhere.

That stood in stark contrast to the United States, where upbeat data only reinforced the case for the Federal Reserve to wind down its stimulus, driving the dollar higher and sideswiping oil and gold in the process.

After surging to a 6-1/2 month high on Thursday, European share markets saw some minor profit taking as the U.S. payrolls report loomed large later in the session.

London's FTSE 100 .FTSE, the DAX .GDAXI in Frankfurt and CAC 40 .FCHI in Paris were all around 0.1-0.2 percent lower but this week's gains - the fourth in a row - took the pan-regional FTSEurofirst 300 index's .FTEU3 rise since mid August to over 8 percent.

"Ourselves along with most market participants were surprised by the degree of the action taken by the ECB yesterday," said Derek Halpenny, European head of Global Markets Research at Bank of Tokyo-Mitsubishi UFJ.

"We believe euro depreciation is what the ECB is focused on for alleviating the near-term downside inflation risks that have become apparent of late," he added, also saying the bank would cut is end of year forecast for euro.

The currency itself was licking its wounds at $1.2934 EUR=, after hitting a 14-month low of $1.2920 EUR= overnight, and it seemed destined to test the July 2013 trough of $1.2898.

It hit a one-month low on the yen at 135.97 EURJPY=R, while the dollar briefly spiked to a six-year peak of 105.71 yen JPY= before steadying at 105.35.

The single currency's capitulation came after ECB President Mario Draghi announced a range of rate cuts and a new plan to push money into the flagging euro zone economy.

In a news conference, Draghi said the aim was to expand the bank's balance sheet back to the heights reached in early 2012, which equates to a rise of around 50 percent or 1 trillion euros in new assets.

PERIPHERAL VISION

Markets were also eyeing whether or not the United States and Europe pushed ahead with plans for new sanctions on Russia at a NATO meeting in Wales.

Ukrainian President Petro Poroshenko and the main pro-Russian rebel leader said they would both order ceasefires on Friday, provided that an agreement is signed on a new peace plan to end the five-month war in Ukraine's east.

In Asia, Japan's Topix .TOPX stalled just short of its January peak. Chart resistance is tough as a break there would take it to levels last seen in July 2008.

Chinese stocks, extended their bull run however, with the CSI300 .CSI300 of the leading Shanghai and Shenzhen A-share listings barrelling to their best in over eight months.

Shorter-dated euro zone debt continued to gain. They rallied hard after the ECB move, pushing the yield gap between U.S. and German two-year debt US2YT=RR DE2YT=RR out to 60 basis points, the fattest premium since May 2007.

Spanish ES10YT=TWEB and Italian IT10YT=TWEB 10-year yields fell 4 basis points to 2.13 percent and 2.33 percent, respectively, within touching distance of their record lows and just over one percentage point above German Bund yields.

"The main beneficiaries are the peripheral markets and I still think there is scope for spreads to narrow over Bunds, particularly in Spain," said Nick Stamenkovic, bond strategist at RIA Capital Markets.

POSITIVE PAYROLLS

Across the Atlantic, data provided fresh evidence that the U.S. economy was on track for sturdy growth in the third quarter. Companies hired workers at a steady clip in August and service sector activity accelerated to 6-1/2-year high.

That lifted yields on 10-year Treasuries US10YT=RR by 4 basis points to 2.453 percent,