* Stocks, euro fall as ECB disappoints markets
* Safe-haven Treasuries rise, oil slips
* Markets still expect Fed, ECB action in coming months
By Steven C. Johnson and Richard Hubbard
NEW YORK/LONDON, Aug 2 U.S. stocks tumbled and
the euro erased gains on Thursday after the European Central
Bank, rather than take immediate action, signalled it would
push down borrowing costs for euro zone countries through
upcoming bond purchases.
The ECB, which also said it would wait to see if the economy
slows further before cutting short-term interest rates, has
pledged to do whatever it takes to ease an ongoing debt crisis
and support the euro.
That disappointed investors expecting more immediate action,
particularly after the Federal Reserve on Wednesday, embracing a
similar wait-and-see approach, did not announce any new stimulus
measures to boost U.S. growth.
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. ... It's going to be a rough day on Wall
U.S. stocks started the day on the defensive. The Dow Jones
industrial average was down 86.65 points, or 0.67
percent, at 12,884.41. The Standard & Poor's 500 Index
was down 9.51 points, or 0.69 percent, at 1,365.63. The Nasdaq
Composite Index was down 11.41 points, or 0.39 percent,
Currency traders were similarly disappointed. The euro,
which had rallied above $1.24, retreated sharply to a one-week
low beneath of $1.2182 during Draghi's news conference.
U.S. Treasuries rose after the ECB announcement, with the
benchmark 10-year note up 13/32 to yield at 1.48 percent.
Spanish and Italian government bond yields rose while
European shares extended losses, with the FTSEurofirst 300 index
fell 1 percent
The MSCI world equity index fell 1 percent.
Reuters reported on Monday that the ECB was considering
re-activating its Securities Markets Programme (SMP) to buy
Spanish bonds in tandem with the euro zone's rescue funds, but
that action could be at least five weeks away.
Since Draghi surprised markets last week with a promise to
save the euro, European shares have rallied by up to 5 percent,
the euro has risen about a cent against the dollar, and yields
on Italian and Spanish debt had fallen sharply.
Some said Draghi's comments, while disappointing to some,
suggest the ECB is serious about helping indebted countries such
as Spain and Italy and stopping the crisis from worsening.
"I think 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
Spain had to pay higher yields than a month ago on its
10-year bonds at an auction on Thursday, but it easily sold 3.1
billion euros of debt with yields far lower than indicated last
week before Draghi's announcement that he would do whatever it
takes to save the euro.
In the United States, investors are still expecting the Fed
to announce another round of asset purchases to help inject life
into a flagging recovery, though that likely won't happen until
Data on Thursday showed the number of Americans filing
initial claims for unemployment benefits rose slightly in the
latest week, though not as much as economists had expected.
A government employment report on Friday is expected to show
the economy added 100,000 jobs in July, not enough to lower the
8.2 percent U.S. jobless rate.
Brent crude oil fell 45 cents to $105.52 a barrel,
while U.S crude fell $1.41 to $87.50.