European stock markets held on to gains but the euro turned sharply lower yesterday after the European Central Bank said a decision to leave its key rate unchanged was not unanimous.
Traders had largely expected the ECB to hold fire on interest rates at its last policy meeting of 2012, but the revelation by ECB head Mario Draghi that some members of the governing council supported a rate cut was enough for markets to take pause though milestones were still hit in Germany and France.
In Britain, the Bank of England also froze its record-low interest rate in a widely expected move one day after the British government extended austerity measures and slashed growth forecasts.
At close in Europe, London’s FTSE 100 index of leading companies edged up by 0.16 per cent to 5,901.42 points while in Frankfurt, the DAX 30 rallied 1.07 per cent to its highest level since January 2008 at 7,534.54 points and in Paris the CAC 40 finished at a year high, up 0.31 per cent to 3,601.65 points.
In foreign exchange deals, the euro slumped to $1.2970 from $1.3064 late in New York on Wednesday as gold prices were stable at $1,694.25 an ounce on the London Bullion Market, from $1,694 on Wednesday.
The ECB’s decision-making governing council voted to leave the bank’s main refinancing rate at a historic low of 0.75 per cent at its regular monthly meeting in the Eurotower headquarters in Frankfurt.
“There was a wide discussion, but in the end the prevailing consensus was to leave the rates unchanged,” Draghi told a news conference.
Draghi added that bank staff had slashed their growth projections for 2012 and 2013 and drawn up its initial forecast for 2014 which also weighed on sentiment. Traders also took stock of a fresh credit rating downgrade for Greece and official data confirming that the eurozone’s economy had contracted by 0.1 per cent in the third quarter, sending the 17-nation currency bloc into recession.
US stocks also moved higher as markets there continued their patient wait for a political deal in the fiscal cliff deficit talks. In midday trade, the Dow Jones Industrial Average added 0.13 per cent, the S&P 500 gained 0.26 per cent, while the Nasdaq Composite rose 0.67 per cent.
In Washington, Republicans and Democrats are locked in talks aimed at agreeing a deficit-cutting plan that would avert the fiscal cliff of huge tax hikes and spending cuts due to come into effect on January 1.
Shares in EADS surged 7.97 per cent after the European Aeronautic Defence and Space Company, which owns the plane maker Airbus, unveiled a deal to restructure shareholdings.
The agreement, announced Wednesday, was aimed at reducing the role of France and Germany but preserve their strategic interests. In Frankfurt, Daimler rose 1.18 per cent after the German automaker halved its stake in EADS, as planned, and pocketed €1.66 billion in proceeds.
The deal cuts in half Daimler’s stake to 7.5 per cent and the buyers included the German state-owned investment bank KfW, which bought a stake of 2.76 per cent and the Dedalus investor consortium, which acquired 1.9 per cent.
But Rolls-Royce shed 3.12 per cent after the aircraft engine maker warned it may be prosecuted over alleged “malpractice” in Indonesia and China after passing on information on bribery concerns to Britain’s fraud office.