Europe Stocks Stay Low, Euro Steady -- 2nd Update

By Tommy Stubbington 

European stocks remained lower Thursday and the euro was steady after the European Central Bank held interest rates at record lows.

The Stoxx Europe 600 was 0.5% lower, deepening their recent decline, after the ECB left all its benchmark rates unchanged--as widely expected by investors.

This week's losses in equity markets were sparked by Wednesday's weaker-than-expected economic data in the eurozone, including an unexpected contraction in Germany's manufacturing sector.

Investors are now looking to the ECB to shore up the eurozone's shaky recovery, although most think Thursday's news conference, which starts at 1230 GMT, will be too soon for fresh action given September's announcement of unexpected interest rate cuts and a program to buy private-sector debt.

"We expect the ECB to reveal details today of its new asset-purchase program, with no change to policy at this juncture," said Barclays analysts.

"However, under our scenario of still weak economic activity and inflation in the coming months, we expect the ECB to ease policy further and extend the scope of asset purchases to government bonds by the beginning of 2015," they said in a note to clients.

U.S. stocks had stumbled Wednesday as the selloff spread to Wall Street, pulling the S&P 500 1.3% lower. Futures contracts indicated a 0.1% gain for the index at Thursday's open. Changes in futures aren't necessarily reflected in market moves after the opening bell.

In Asia, Japan's Nikkei dropped 2.6% as a stronger yen exacerbated investors' concerns.

Expectations of further ECB measures have weighed on the euro in recent weeks, and the currency was steady against the dollar after the rate announcement at $1.2637, not far above the two-year low hit earlier this week.

The euro's relatively mild reaction to Wednesday's disappointing data could point to further losses for the currency, according to a note to clients from Citigroup.

"This is healthy for the greater move lower. I think the market is underestimating [ECB President Mario] Draghi's ability to be dovish during this meeting," said a Citigroup currency trader in London.

Bonds in the eurozone have also been boosted by hopes of further ECB action. German 10-year yields traded at 0.91% Thursday, not far above August's all-time low of 0.86%. Yields fall as prices rise.

In commodities markets, gold was 0.2% lower at $1,213.90, and Brent crude oil was 2.1% lower at $92.20 a barrel.

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