Stocks drop as ECB's Draghi holds line

ECB's Draghi fails to hint at more easing, prompts retreat in stock markets but euro up

Associated Press
Asia stocks fall ahead of US jobs report
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A man walks by an electronic stock board of a securities firm in Tokyo, Wednesday, June 5, 2013. Asian stock markets fell Wednesday as signs the U.S. Federal Reserve might scale back its super-loose monetary policy caused investors to trim equity investments. Japan's Nikkei 225 index tumbled 1.8 percent to 13,295.89, registering disappointment with a lack of detail in Prime Minister Shinzo Abe's unveiling of the third plank of his so-called Abenomics program intended to rouse a long-stagnant economy. (AP Photo/Itsuo Inouye)

LONDON (AP) -- The failure of European Central Bank President Mario Draghi to hint at any further easing in monetary policy weighed on stock markets Thursday but shored up the euro.

Following the ECB's widely expected decision to keep its main interest rate unchanged at the record low of 0.5 percent, Draghi did not signal any further measures to boost the ailing eurozone economy, which has been in recession for the past six quarters.

Even though the ECB cut its growth and inflation forecasts for the 17-country eurozone, Draghi said the governing council felt there was no reason to act now, especially as the recent data suggest an easing in the economic contraction.

"We reckon currency traders are now feeling a little braver in their assertion that it will be harder to squeeze more blood out of this stone," said Andrew Wilkinson, chief economic strategist at Miller Tabak & Co.

The euro was firm, trading 0.3 percent higher at $1.3138. Last month, it fell below the $1.30.

Draghi's remarks weighed on stocks, however — lower interest rates or other measures to loosen monetary policy tend to boost economic activity.

Germany's DAX was down 0.4 percent at 8,161 while the CAC-40 in France fell 0.4 percent to 3,839. The FTSE 100 index of leading British shares was 0.7 percent lower at 6,372 following the Bank of England's decision to keep its monetary policy unchanged.

Trading on a number of European exchanges started about an hour late Thursday after a problem with NYSE Euronext's systems prevented customers from placing orders. Exchanges in Paris, Lisbon, Brussels and Amsterdam were affected by the unexplained glitch.

In the U.S., the Dow Jones industrial average was up 0.2 percent at 14,983 while the broader S&P 500 index rose the same rate to 1,613.

Now that the ECB meeting is out of the way, the focus in the markets is on Friday's nonfarm payrolls data. An 11,000 fall in weekly jobless claims to 346,000 was in line with expectations and did little to alter predictions for Friday's report. The consensus in the markets is that payrolls rose about 180,000 in May.

"Traders may be tempted to sit on their hands in the short term," said Mike McCudden, head of derivatives at Interactive Investor.

This week's economic news out of the U.S. has been disappointing and investors now think it's less likely that the Fed will decide to reduce the amount of financial assets it has been buying in the markets in the hope of stimulating the U.S. economy.

Fed chief Ben Bernanke has said the U.S. central bank might pull back on its $85 billion-a-month bond-buying program as economic data improves. But other Fed officials have spoken about a winding down of asset purchases sooner. The uncertainty over a possible tapering of the stimulus has been a cause for concern for many stock investors over the past couple of weeks.

The purchases have been one of the main drivers in financial markets in recent years and have contributed to the rise in many global indexes to record highs.

In Asia, markets responded to the weakness experienced the previous day in Europe and the U.S.

The Nikkei closed down 0.9 percent at 12,904.02. That's on top of Wednesday's 3.8 percent fall. Hong Kong's Hang Seng fell 1.1 percent to 21,838.43, while Shanghai's main index dropped 1.3 percent to 2,346.80. Markets in South Korea were closed for a public holiday.

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