Markets unimpressed by Draghi promises

Associated Press
Trader William McInerney, center, works on the floor of the New York Stock Exchange Tuesday, July 31, 2012.  U.S. stocks are opening mostly lower ahead of a two-day policy meeting at the Federal Reserve. (AP Photo/Richard Drew)
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Trader William McInerney, center, works on the floor of the New York Stock Exchange Tuesday, July 31, 2012. U.S. stocks are opening mostly lower ahead of a two-day policy meeting at the Federal Reserve. (AP Photo/Richard Drew)

LONDON (AP) — Financial markets were unimpressed by European Central Bank president Mario Draghi's suggestion that the bank is preparing a new approach to get a grip on the continent's debt crisis.

Draghi told a press briefing after the ECB held its main interest rate at 0.75 percent that the bank can intervene in the bond market to drive down high interest rates.

He said the ECB could buy bonds in the markets, insisted that the euro currency was irreversible and promised to address investor concerns that the ECB will be repaid first on any bonds it holds, before other investors.

He also said the ECB would consider other emergency measures over the weeks to come. Though many analysts think that could mean the ECB could inject new money in the financial system, it's not a done deal — Germany's Bundesbank is likely to remain opposed.

"After all, these remain promises," said Dan Greenhaus, chief global strategist at BTIG. "Investors are tired of promises. They want action."

Before Draghi's statement, stocks and the euro were buoyant. As he spoke they both went into reverse.

In Europe, Germany's DAX was down 1.4 percent at 6,657 while the CAC-40 in France fell 1.3 percent to 3,278. The FTSE 100 index of leading British shares was down 0.7 percent at 5,675.

The euro was 0.2 percent lower at $1.2215.

Wall Street was also expected to open lower, with both Dow futures and the broader S&P 500 futures down 0.9 percent.

Hopes that the ECB will back new measures were stoked a week ago when ECB chief Mario Draghi vowed to do what it takes to save the euro. Many expected the bank at the very least to resume its bond-buying program to keep a lid on Spain's and Italy's borrowing costs.

Draghi's comments sparked a bout of euphoria in the markets, particularly in the bond markets of Spain and Italy. Both saw their borrowing rates fall to more manageable levels. The interest rate, or yield, on Spain's 10-year bonds is at 6.64 percent — below the 7 per cent level that many market-watchers consider unsustainable.

Earlier in Asia, Japan's Nikkei 225 stock average finished up 0.4 percent at 8,653.18 while Hong Kong's Hang Seng dropped 0.7 percent to 19,690.20. South Korea's Kospi shed 0.6 percent to 1,869.40 and China's Shanghai Composite fell 0.6 percent to 2,111.18.

Oil markets slid alongside equities— benchmark crude for September delivery was down 45 cents at $88.46 a barrel in electronic trading on the New York Mercantile Exchange.

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