The prospect of a fresh stimulus package to support the ailing eurozone economy when Christine Lagarde takes up the reins as boss of the currency bloc’s central bank sent shares higher across Europe and the US on Wednesday.

The FTSE 100 closed up 0.7% at 7,609 points after starting the week at 7,497, while the New York S&P 500 sailed to another record high and moved closer to the 3,000 mark.

European Union leaders’ nomination of Lagarde, currently the head of the International Monetary Fund, to replace Mario Draghi as president of the European Central Bank (ECB) widely reinforced expectations of more monetary policy easing this year.

With a slowdown in growth taking hold in most developed economies, especially across the manufacturing sector, markets have expected central banks to respond by cutting borrowing costs for businesses and households.

Draghi has already signalled that falling inflation in the eurozone will demand a response from the central bank, probably in the form of further quantitative easing. Lagarde is expected to support this policy, despite likely objections from German policymakers keen to boost interest rates back to levels seen before the financial crisis.

Bond markets were also dominated by the likelihood of cheaper borrowing courtesy of Lagarde at the helm of the ECB, with borrowing rates across the 19-member eurozone dipping lower.

Traders cut the interest rate on German 10-year bonds to record lows of -0.39% and lowered Italian two-year yields back into negative territory for the first time in over a year.

The UK government also benefited from a dash to safe havens. The interest rate on 10-year UK bonds fell to 0.687%, which left it below the Bank of England’s main policy rate of 0.75% for the first time in a decade.

“We have already seen some weak data in recent weeks, so that is the backdrop,” said Elwin de Groot, the head of macro strategy at Rabobank. “And now we have Christine Lagarde as the likely successor of Mr Draghi at the ECB, which for the market says that the dovish policies will continue.”

Donald Trump, who has argued that the US Federal Reserve boss, Jerome Powell, should provide a monetary stimulus to boost US growth, welcomed the latest increase in stock market values.

Trump tweeted: “S&P 500 hits new record high. Up 19% for the year. Congratulations! We have the greatest economy anywhere in the world.”

The Fed has signalled that it is prepared to cut rates this year, possibly as early as this month boosting US stock markets that had flagged earlier in the year when Powell appeared to rule out reversing three years of increasing borrowing costs.

Chris Beauchamp, the chief market analyst at spread betting firm IG, said: “The trend in the data seems to confirm the Fed’s need to ease policy, as the [job] numbers and the ISM non-manufacturing figure both came in below forecasts.”

He said exuberant markets, hopeful “that the appointment of Christine Lagarde to the ECB will herald a more activist approach from the central bank”, could soon deflate unless central banks moved quickly.

Beauchamp added that the failure of oil prices to rise strongly indicated that commodity traders believed global tensions arising from Trump’s trade tariff war with China would continue to dominate sentiment and hit global growth.

The UK economy is faced with the twin threat of a global trade-related slowdown and the potential impact of a no-deal Brexit. A closely watched survey of the services sector, published on Wednesday, indicated the British economy contracted by about 0.1% in the second quarter.

Chris Williamson, the chief business economist at IHS Markit, said: “The latest downturn has followed a gradual deterioration in demand over the past year as Brexit-related uncertainty has increasingly exacerbated the impact of a broader global economic slowdown.” Figures showed the UK’s economy stalled last month.

The pound flirted with two-week lows and stood at $1.2568, on course for its fifth drop in the past six trading sessions.