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Author
Pan Pylas
Date
January 9, 2014

Markets drift lower as ECB stands pat

LONDON (AP) — Hints from the European Central Bank’s top official that it might further ease its monetary policy failed to ignite markets Thursday as investors geared up for U.S. jobs figures that could have a bearing on how quickly the Federal Reserve reduces its stimulus.

Though the ECB kept its interest rates unchanged, President Mario Draghi said in his ensuing press conference that further easing measures are possible in the months ahead as inflation remains low and growth weak. He also said the ECB expects its main interest rates “to remain at present or lower levels for an extended period of time.”

Draghi said the bank is ready to take “further decisive action” and use “all available tools” to spur the weak recovery. However, he said it was pointless to speculate what specific measures the bank might take. He would say only that the bank could use any tool permitted under the European Union treaty that created the bank and the shared euro currency.

“Draghi tried to reassure the market he has a few cards up his sleeve, but actions speak louder than words,” said David Madden, market analyst at IG.

In Europe, Germany’s DAX closed down 0.8 percent at 9,421.61 while the CAC-40 in France fell the same rate to 4,225.14. The FTSE 100 index of leading British shares ended 0.5 percent lower at 6,691.34 after the Bank of England also kept policy on hold.

The euro took a brief hit following Draghi’s remarks as traders priced in the possibility of more easing measures by the ECB in the future. However, it has since recovered to trade 0.1 percent higher at $1.3591.

In the U.S., the Dow Jones industrial average was down 0.3 percent at 16,418 while the broader S&P 500 index fell 0.2 percent to 1,834.

Now that the ECB monthly meeting is out of the way, investors can fully focus on Friday’s U.S. nonfarm payrolls report, which can set the market tone for a week or two after its release.

The figures will be viewed in the context of how fast the U.S. Federal Reserve will reduce its monetary stimulus. Following a run of encouraging economic indicators, many economists now think the Fed will be more aggressive in its stimulus-reduction program than previously thought.

At its last policy meeting in December, the Fed took its first step to exit its current stimulus by deciding to trim its purchases by $10 billion to $75 billion this month. The money created by the stimulus has helped increase liquidity through the global financial system, and given stocks a boost.

Earlier in Asia, Tokyo’s Nikkei 225 shed 1.5 percent to 15,880.3 and China’s benchmark Shanghai Composite Index fell 0.8 percent to 2,027.62. Hong Kong’s Hang Seng dropped 0.9 percent to 22,787.33.

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