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US stocks slump with no concrete action in Europe

Christina Rexrode, AP Business Writer

Traders and floor officials gather at a post on the floor of the New York Stock Exchange shortly after the beginning of trading, Wednesday, Aug. 1, 2012. The market wavered between gains and losses for much of Wednesday, yanked around by technical problems, an ambiguous statement from the Federal Reserve, and mixed reports on U.S. companies that made it difficult to decipher just where the economy is headed. (AP Photo/Richard Drew)

NEW YORK (AP) -- U.S. stocks slid early Thursday after the European Central Bank failed to take any decisive action for solving the continent's debt crisis.

Hopes had been high that the ECB would announce concrete steps after president Mario Draghi promised last week to do "whatever it takes" to keep the union of the 17 countries that use the euro intact.

Stock index futures were higher in pre-market trading, but slumped once Draghi's statement was released around 8:30 a.m. Eastern. The euro also lost ground against the dollar.

"It's more jawboning, it's more copy and paste from last week," said Kenny Polcari, managing director of ICAP Corps. "There was no definitive plan, and so all the hype and energy he created last week is going to go down in flames today."

Knight Capital Group, the trading firm which took the blame for a technical glitch that sent trading of dozens of stocks into chaos early Wednesday, plunged $3.40 to $3.54. Knight said it would suffer a $440 million loss because of the trading problems.

The Dow Jones industrial average fell 47 points to 12,924 in the first hour of trading. The Standard & Poor's 500 index fell three points to 1,373. The Nasdaq composite index rose 11 points to 2,931.

The lack of action the ECB was the second disappointment in as many days for investors who were hoping for strong-armed action from central banks. On Wednesday, U.S. stocks turned downward after the Federal Reserve made a similarly noncommittal pledge, promising to take more action to help the U.S. economy if things continued to get worse.

Investors had thought Draghi might announce a specific plan, like buying more bonds to force down borrowing costs for weak countries like Spain and Italy. The borrowing costs of both countries rose sharply after the ECB's announcement as investors rushed to sell Spanish and Italian government bonds.

The yield, or interest rate, on Spain's benchmark 10-year bond rose to 6.96 percent from 6.68 percent late Wednesday, and the yield on Italy's 10-year bond rose to 6.17 percent from 5.85 percent. European stock markets also fell sharply. Benchmark indexes fell 3 percent in Spain and 2.5 percent in Italy.

Draghi appeared to suggest that the ECB is developing measures to address Europe's debt crisis. He said that any bond market intervention would be "of a size adequate to reach its objectives" and that the concerns of investors over the order in which creditors are paid would be addressed. Investors who have put money into the bonds don't want their holdings wiped out by a government declaration.

Some investors believe that the euro, Europe's shared currency, should be dismantled. If that happens, however, a breakup of the currency union would be sure to cause disruptions in financial markets. That's why Draghi's vow last week to keep the euro zone together, which was echoed by German Chancellor Angela Merkel and French President Francois Hollande, sent markets up.

Europe's problems continued to haunt the earnings of U.S. companies. General Motors and Kellogg reported lower quarterly profits, which they blamed partly on Europe.

Among stocks making big moves, Abercrombie & Fitch and Aeropostale also fell sharply after pre-announcing disappointing second-quarter sales.

There were some positive signs about the economy but they got lost in the maelstrom. For example, retailers including Target, Limited Brands and Gap announced that July sales had beat expectations. Shares of all three companies were up in early trading.