* MSCI world index down for 4th day, longest run since Dec
* ECB announces funding handouts, pushes back rate hike
* S&P 500 hits three-week low on growth worries (Updates with open of U.S. markets, changes byline, dateline; previous LONDON)
By Chuck Mikolajczak
NEW YORK, March 7 (Reuters) - A gauge of global stock markets slumped on Thursday while the U.S. dollar rose, as the European Central Bank postponed interest rate rises to 2020 and launched a fresh round of cheap loans to banks to help rejuvenate the euro zone economy.
Equities had drifted lower over the past several sessions before the session’s sharp drop, sparked by the ECB’s change of direction just months after it wound down its massive quantitative easing program.
The ECB’s move puts it in sync with other central banks around the world that have been taking a dovish tack, including the Bank of Canada earlier this week. The ECB also cut its growth and inflation estimates for 2019 as well as those for 2020 and 2021, raising alarm bells for investors once again over global growth.
“We have had weakness the past couple of days but certainly, today’s action is being driven all by (ECB President Mario) Draghi because that was unexpected,” said Ken Polcari, managing principal at Butcher Joseph Asset Management in New York.
“The no-change in rates was expected so that is fine but his commentary about slashing forecasts, that is new, the market wasn’t really prepared for that.”
The growth concerns weighed on banking shares in the U.S., which helped push the benchmark S&P 500 index to its lowest level since Feb 14.
The Dow Jones Industrial Average fell 196.07 points, or 0.76 percent, to 25,477.39, the S&P 500 lost 16.35 points, or 0.59 percent, to 2,755.1 and the Nasdaq Composite dropped 40.34 points, or 0.54 percent, to 7,465.58.
MSCI’s gauge of stocks across the globe shed 0.77 percent. MSCI’s index was below its 200-day moving average for the first time since mid-February and on track for its fourth straight day of losses, the longest streak this year.
Stocks in Europe were whipsawed, first jumping but then quickly reversing course when the ECB acknowledged that Europe’s slowdown was longer and deeper than earlier thought.
The pan-European STOXX 600 index lost 0.55 percent.
The euro weakened to a four-month low of 1.1216 and the dollar rose against a basket of major currencies after the ECB announcement.
The dollar index rose 0.56 percent, with the euro down 0.74 percent to $1.1221.
The global growth worries overshadowed generally solid economic data in the U.S. on the labor market and worker productivity. Non-farm payrolls data will be released on Friday.
The ECB move also sent prices on U.S. Treasury bonds higher, with 10-year yields hitting their lowest in a week.
Benchmark 10-year notes last rose 11/32 in price to yield 2.6519 percent, from 2.692 percent late on Wednesday.
Oil prices were higher as OPEC-led supply cuts and U.S. sanctions against exporters Venezuela and Iran counteracted record U.S. crude output and growth worries.
U.S. crude rose 0.85 percent to $56.70 per barrel and Brent was last at $66.25, up 0.39 percent on the day.
Reporting by Chuck Mikolajczak; Editing by Bernadette Baum