Europe stocks fall on dashed ECB hopes

European stocks and the euro fell in volatile trading yesterday, tracking moves by the European Central Bank and comments by politicians ahead of a crucial EU summit called to prevent a collapse of the eurozone. Also weighing on markets was an announcement due after close of trading on how much capital European banks to meet new requirements aimed at making sure they can withstand future financial shocks. The European Central Bank cut its key interest rates for the second time in two months, cutting the rate for its main refinancing operations by a quarter of a percentage point to 1.00%, briefly sending stocks and the euro higher. The ECB later said it would extend its liquidity-providing operations and accept a wider range of collateral for loans in a bid to support eurozone banks. But ECB chief Mario Draghi poured cold water on traders’ hopes that it would announce plans to step up a programme of major bond purchases to help ailing eurozone countries, sending markets falling. The euro dipped to $1.3308 from $1.3413 late in New York on Wednesday, having fallen as low as $1.3289 - its lowest level since central banks intervened on markets last week to support banks. London’s FTSE-100 index of top companies slid 1.14% to close at 5,483.77 points, while in Frankfurt the DAX 30 dropped 2.0% to 5,874.44 points and Paris’ CAC-40 tumbled 2.53% to finish the day at 3,095.49 points. Milan plunged 4.29% and Madrid 2.12%. Wall Street fell even though new claims for US unemployment insurance tumbled last week to the lowest level in nearly 10 months, suggesting the troubled jobs market is stabilising. The Dow Jones Industrial Average fell 0.89% to 12,087.73 points in midday trade, while the broader S&P 500 dropped 1.14% to 1,246.65 points, and the Nasdaq slid 0.87% to 2,626.06 points. Jonathan Loynes, chief European economist at Capital Economics, said the ECB had “shattered hopes that it is about to fire a silver bullet into the heart of the debt crisis.” For a start, Draghi had revealed that the rate-cut the decision was not unanimous. And he gave little indication that the central bank might be prepared to cut rates further, the analyst said. Draghi had also poured cold water on the idea of the ECB lending money to the International Monetary Fund for on-lending to troubled eurozone countries. Overall, “with the ECB refusing to come to the rescue, it is very difficult to see just what is going to bring the current crisis to an end,” Loynes said. Markets were also spooked by apocalyptic comments from French President Nicolas Sarkozy, who warned a deal was needed at the two-day EU summit beginning later yesterday in Brussels.