(Reuters) - European stock markets turned into a sea of red on Thursday after the European Central Bank signaled monetary policy easing ahead, but disappointed investors who sought more clarity on its action to stimulate a slowing economy.
Investors initially cheered the ECB's policy statement, which said the central bank saw rates at present or lower levels through mid-2020 and was considering other easing options, lifting the pan-European STOXX 600 index .STOXX to its highest level in more than a year.
Howeve, the gains soon evaporated and the index tumbled more than 0.5% after ECB chief Mario Draghi said the risk of a recession in the euro zone was “pretty low”, policymakers did not discuss interest rate cuts at Thursday’s meeting and they would wait for more data before “taking action.”
“He made it clear that these things presented in the statement are options and not necessarily forthcoming, so that was a bit of a disappointment for markets,” said Rabobank strategist Bas Van Geffen. “He wasn’t as vocal with what the next steps would be at the central bank.”
Expectations of easier monetary policy have spurred a rally in stocks globally since steep falls in May, but analysts warn it may now be difficult with expectations for interest rate cuts from the ECB and the U.S. Federal Reserve already priced in.
“The danger is that investors have become too complacent, relying fully on accommodative monetary policy, and ignoring the late-cycle risks that are lingering in the background,” said Wolfgang Bauer, fixed income manager at M&G Investments.
German shares .GDAXI suffered the biggest blow, falling 1.3%. A survey showed Germany's business morale plunged in June, stoking fears a manufacturing crisis is pulling Europe's largest economy towards recession..
Car parts maker Hella HLE.DE, down about 6%, emerged as the latest company to warn of a deteriorating environment in the sector, with weak results from U.S. automaker Ford Motor Co F.N and Japan's Nissan Motor Co 7201.T adding to woes.
Banks .SX7P ended 0.2% lower after shooting up earlier in the day on news the ECB discussed tiered deposit rates, which would mean banks are exempted in part from paying the ECB's 0.4% annual charge on their excess reserves, boosting their profits.
Helping limit losses on Britain's FTSE 100 .FTSE was a 7.7% jump in drugmaker AstraZeneca Plc's AZN.L shares after it raised its product sales forecast for 2019. Europe's healthcare index .SXDP was among the few sectors trading higher.
Other gainers included shares of the world's largest brewer Anheuser-Busch InBev ABI.BR, up 4.3%, after reporting the fastest beer sales growth in five years and defence and aerospace group Cobham COB.L, which topped the STOXX 600 with a 35% surge after U.S. private equity group Advent International agreed to buy it for 4 billion pounds ($5 billion).
Reporting by Sruthi Shankar and Medha Singh in Bengaluru, additional reporting by Josephine Mason in London; editing by Ken Ferris
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