US, Europe Stocks Fall on ECB Actions

US, Europe Stocks Fall on ECB Actions

NEW YORK (AP) -- U.S. stocks edged lower and European markets fell sharply Thursday after the European Central Bank announced stimulus plans that were less aggressive than investors were expecting. Bond prices fell sharply in Europe and the euro rose against the dollar. U.S. bond prices also fell, sending yields higher.

KEEPING SCORE: The Dow Jones industrial average lost 61 points, or 0.4 percent, to 17,668 as of 10 a.m. Eastern. The Standard & Poor's 500 index fell seven points, or 0.3 percent, to 2,072 and the Nasdaq composite fell five points, or 0.1 percent, to 5,117.

DRAGHI DISAPPOINTS: The European Central Bank announced a cut in one of its key interest rates in an attempt to stimulate lending and help a modest economic recovery. The bank reduced the rate on deposits from commercial banks from a negative 0.2 percent to a negative 0.3 percent. The negative rate is intended to push banks to lend excess cash by imposing a penalty for leaving it at the central bank's super-safe deposit facility.

"This is less of a rate cut than markets and we had expected, probably showing that the hawks at the ECB had more leverage than expected," said Carsten Brzeski, an economist at ING.

REACTION: The ECB's announcement caused the euro to jump against the dollar, moving up nearly 2 percent to $1.0801. Investors had been betting against the euro ahead of the announcement, expecting that more stimulus would put pressure on the euro. European stocks dropped. Germany's DAX fell 2.5 percent, France's CAC-40 index lost 2.6 percent and the U.K.'s FTSE lost 1.2 percent.

BOND SHIFT: With ECB interest rates not going as negative as expected, European bond yields jumped. The yield on German 10-year bonds jumped 0.14 percentage points to 0.62 percent, a massive move in the bond market. French 10-year yields rose 0.17 percentage points to 0.96 percent, also a substantial move.

The sell-off in the dollar also impacted U.S. Treasuries. The yield on the 10-year Treasury note jumped to 2.26 percent from 2.19 percent the day before.

FED ACTION: While the ECB is easing policy, the U.S. Federal Reserve looks set to raise interest rates later this month for the first time in nine years. In comments Wednesday, Fed Chair Janet Yellen gave an upbeat assessment of the economy's progress since the Fed's last meeting in October, describing it as in line with its expectations for the labor market and inflation. She also was careful to point out the need to review upcoming data, including the U.S. jobs report Friday.

ENERGY: Benchmark U.S. crude was up 31 cents to $40.24 a barrel on the New York Mercantile Exchange. Brent crude, which is used to set prices for international oils, was up 63 cents to $43.12 a barrel in London.

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