LONDON (AFP) - European stocks and the euro pulled back on Thursday as investors were apparently unimpressed with the ECB's pledges to act if necessary to ward off deflation or a credit crunch.
Investors had widely expected the European Central Bank and Bank of England to hold their rates steady, but despite strong comments by ECB chief Mario Draghi, markets slid.
London's benchmark FTSE 100 index closed down 0.45 per cent at 6,691.34 points, while Frankfurt's DAX 30 shed 0.80 per cent to 9,421.61 points and the CAC 40 in Paris fell 0.84 per cent to 4,225.14 points.
The ECB's policy-setting governing council left its central "refi" refinancing rate at the current historic low of 0.25 per cent.
The BoE, also held its key interest rate at a record-low level of 0.50 per cent and maintained the level of stimulus pumping around the economy at £375 billion (S$784 billion).
Mr David Madden, an analyst at brokerage IG, said Draghi failed "to convince the market that he can save the eurozone from sinking into the abyss" of deflation.
Other analysts noted Mr Draghi used exceptionally strong wording when he said the ECB is ready to act to prevent deflation or a credit crunch, although he was vague about details. "Mr Draghi tried to reassure the market he has a few cards up his sleeve, but actions speak louder than words," noted Mr Madden.
Varengold Bank trader Anita Paluch said Draghi's comments "has dampened the spirits of those who expected some hints of stimulus steps." She added Mr Draghi's frank assessment of the eurozone recovery as fragile also did not help sentiment, but said "what really dampened the mood was the situation in France".
The head of France's Cour des Comptes, which analyses government policy, said the government's current efforts to reduce the country's debt are insufficient to get country of the "danger zone".
France's debt is expected to peak at 95.1 per cent of GDP this year, according to government forecasts.
In London, "retail stocks have once again taken centre stage today with disappointing trading updates from Marks and Spencer, Morrisons and Tesco over the Christmas period," said CMC Markets analyst Michael Hewson.
The euro dropping sharply against the dollar, from about $1.3627 to below $1.3570, after Mr Draghi acknowledged continuing worries about the threat of deflation in the eurozone, despite pledging decisive action if conditions worsen.
CMC Markets' Hewson said "Draghi did prompt some euro weakness by being slightly more downbeat than expected when he stated that rates would stay at current levels, or lower for an extended period." The euro later stood at $1.3593, compared to $1.3571 late on Wednesday in New York.
The euro edged up to 82.57 British pence from 82.52 pence Wednesday. The British pound gained to $1.660 from $1.6447.
Gold prices grew to $1,226 an ounce from $1,221 Wednesday on the London Bullion Market.
Asian stock markets mostly fell on Thursday following losses on Wall Street, as minutes from the Federal Reserve's recent policy meeting showed officials are confident the US economy can withstand stimulus cuts.
US stocks were trading down on Thursday despite positive jobs data.
In midday trade the Dow Jones Industrial Average was down 0.35 per cent to 16,405.50 points. The broad-based S&P 500 slid 0.19 per cent to 1,834.01, while the tech-rich Nasdaq Composite dropped 0.39 per cent to 4,149.53.