GLOBAL MARKETS-Stocks, euro tumble as ECB disappoints markets

NEW YORK: Global stocks and the euro tumbled o n T hursday after the European Central Bank disappointed investors who were hoping for immediate action to combat the euro zone debt crisis.
The
ECB signaled plans to push down borrowing costs for euro zone countries
through upcoming bond purchases, though the move is likely weeks away.
The
central bank, which said it would wait to see if the euro zone economy
slows further before cutting interest rates, pledged last week it would
do what it takes to support the euro.
The U.S. Federal Reserve
took a similar wait-and-see approach o n W ednesday and did not
announce any new stimulus measures to help revive a flagging U.S.
recovery. Data on Fr iday is expected to show the U.S. economy added
100,000 jobs in July, not enough to lower an 8.2 percent jobless rate.
ECB President Mario Draghi "set us up like a poker room full of suckers," said Todd Schoenberger, managing principal at the BlackBay Group in New York. "We were all expecting a shock-and-awe moment."
The Dow Jones industrial average closed down 92.18 points, or 0.71 percent, at 12,878.88.
The Standard & Poor's 500 Index fell 10.14 points, or 0.74 percent, to 1,365.00.
The Nasdaq Composite Index fell 10.44 points, or 0.36 percent, to 2,909.77.
The
euro, which had rallied above $1.24, beat a quick retreat to $1.2132
for its biggest one-day move in a year. It last changed hands at
$1.2178, down 0.4 percent.
Safe-haven U.S.
Treasuries rose, with the benchmark 10-year note up 12/32 to yield 1.48
percent, while Spanish and Italian bond yields rose and European shares
fell.
The FTSEurofirst 300 index closed 1.2 percent lower and the MSCI world stock index lost 1.0 percent.
Spanish and Italian stocks were hit especially hard, with indexes falling around 5 percent each.
Reuters
reported on Monday that the ECB was considering re-activating its
Securities Markets Programme to buy Spanish bonds in tandem with the
euro zone's rescue funds, but that action could be at least five weeks
away.
"Draghi put himself in such a difficult position," said
Joshua Raymond, chief market strategist at City Index. "There has been
a swift change in the rhetoric from 'we will' last week to 'we may'
today.
Brent crude oil settled 6 cents lower at $105.90 a
barrel, while U.S. crude fell in tandem with stocks and other
growth-sensitive assets to settle down $1.78 at $87.13.
Spot gold fell $10.25 to $1,588.30
LAYING THE GROUNDWORK
Since
Draghi surprised markets last week with a promise to save the euro,
European shares had rallied by as much as 5 percent, the euro has risen
about a cent against the dollar and yields on Italian and Spanish debt
had fallen sharply.
Some, though, said the ECB president made
clear that policymakers are serious about helping indebted countries
such as Spain and Italy and stopping the crisis from worsening.
"What
he said was pretty significant. He seems to have laid the groundwork
for substantial policy action," said Andrew Wilkinson, chief economic
strategist at Miller, Tabak & Co. "It wouldn't surprise me if we get a risk rally in the days ahead."
Stephen Jen, managing partner at SLJ Macro Partners, said the market expected too much.
"The
market demanded short-term fixes. I think this reflects how the markets
have been conditioned by the Fed's repeated (stimulus) operations.
Investors have now been reminded that there are no quick fixes for the
problems in Europe."
The Fed has been much quicker than its euro
zone counterpart to pump money into the financial system. It has
already bought assets to the tune of $2.3 trillion and pledged to keep
interest rates at zero until at least late 2014.
Though it stood
pat this week, it said it was ready to act if necessary. Investors
expect it could launch another round of bond purchases as soon as
September.
The U.S. economy lost momentum in the second quarter as the pace of hiring slowed and consumer confidence weakened.
Data
Thursday showed the number of Americans filing initial claims for
unemployment benefits rose slightly in the latest week, though less
than economists had expected. - Reuters