* Euro surges, shares slump as ECB measures disappoint
* European stocks turn lower, bond yields rise
* Dollar falls away from 12-1/2 year high
* Oil jumps on report Saudi Arabia to call for OPEC cut
By Marc Jones
LONDON, Dec 3 (Reuters) - European shares suffered their biggest fall in three months on Thursday and the euro leapt more than 2 cents, its biggest surge since March, on disappointment with the European Central Bank's latest easing measures.
The ECB cut its deposit rate by the minimum 0.1 percentage points most traders had expected, to -0.3 percent, and extended its asset purchase programme but did not increase the amount of government bonds it buys each month.
The euro sprang 2.3 percent higher against the dollar to $1.0860, having been nearer $1.06 just hours earlier, while German and other government bond yields saw their biggest jump in months. For shorter term two-year German bonds it was the sharpest rise since 2011.
Stock markets were clearly shaken too. The FTSEurofirst dropped as much as 2 percent as trading screens went red across Europe, although Wall Street opened marginally higher having seen the S&P 500 drop 1 percent on Wednesday.
"It clearly looks like Super Mario is disappointing the markets, which were expecting a lot more," said Stephane Ekolo, Chief European Strategist at Market Securities.
"Bear in mind that (he) has accustomed market participants to surpass their lofty expectations. This time around it is a horse of a different colour."
Risk assets had already been left bruised after Federal Reserve chief Janet Yellen said on Wednesday she was "looking forward" to hiking U.S. interest rates, something expected to happen for the first time in almost a decade on Dec. 16.
That had sent the dollar on another tear higher but disappointment at the ECB's measures turned things around completely, triggering in turn a rally in U.S government bond markets and a handful of key emerging market currencies.
Gold shot off a 5-1/2-year low too, while oil jumped $2 a barrel as the weaker dollar dovetailed with a report that Saudi Arabia would call for OPEC to cut its production by 1 million barrels a day at the group's meeting on Friday.
U.S. crude was up 1.6 percent at $40.58 a barrel after dropping 4 percent overnight, with Brent up more than 2 percent at $43.50.
OPEC sources and analysts said the reported Saudi proposal was unlikely to find support, however, as Iraq is struggling to balance its budget and Iran has long argued its market share was stolen by rivals during the years of sanctions.
"It is very difficult to cut 1 million bpd collectively. The Saudis do not want to change their previous talk. No cut without cooperation," one Gulf OPEC source told Reuters.
Wall Street managed to fend off the worst of Europe's volatility, with its main S&P 500, Dow Jones Industrial and Nasdaq markets all opening fractionally higher after significant losses in the previous session.
Draghi and his colleagues did extend the minimum length of time it will buy government bonds for, but there was disappointment there too as it had been expected to increase the amounts it buys a month from 60 billion euros to 70 billion.
The assessment from markets was that the ECB was unlikely to be able to bring euro zone inflation, which is currently barely visible, back to its target of just below 2 percent.
The euro zone five-year, five-year breakeven forward rate -- an inflation gauge often cited by the ECB -- fell to 1.75 percent after the meeting, having been at around 1.81 percent beforehand..
"Everyone was expecting Draghi to be the white knight for Europe once again and he hasn't really showed up," said Aberdeen Asset Management Investment Manager Patrick O'Donnell. "Today's measures amount to tinkering around the edges."
Additional reporting by Sudip Kar-Gupta in London; Editing by Catherine Evans