Payrolls, Draghi Dent Euro -- 2nd Update

By Tommy Stubbington 

Markets largely shrugged off the European Central Bank's latest monetary policy meeting, but the euro weakened against the dollar following stronger -than-expected jobs growth in the U.S.

ECB Chief Mario Draghi struck a cautious tone in his monthly news conference Thursday, running through technical details of the central bank's plan to provide cheap loans to euro-area banks.

That formed part of a package of measures designed to head off troublingly low inflation. The ECB kept rates on hold at record lows in July, as was widely expected.

Markets showed little reaction, with European stocks holding on to early gains. The euro sank slightly against the dollar, shedding 0.4% to a one-week low of $1.3596.

But the catalyst came from the U.S., where July's monthly jobs report topped expectations. The dollar posted gains against a range of currencies, while the euro was little-changed against the yen.

The common currency remains above the level where it traded before last month's ECB rate cuts.

Mr. Draghi reiterated earlier comments on the exchange rate, saying it isn't a policy target for the ECB, but is relevant to the inflation outlook.

"There is been no big surprise from Mr. Draghi. He's still dovish and still says the exchange rate is important," said Steven Saywell, global head of foreign-exchange strategy at BNP Paribas.

"It is more about the nonfarm payrolls today," he added.

Longer term, some analysts think last month's easing package could make a bigger dent on the euro.

Mr. Draghi said its program of cheap loans to banks could total as much as a trillion euros.

"If Draghi is right the ECB balance sheet would grow considerably over time. Given the historic link between [the eurodollar exchanged rate] and the ratio of Fed/ECB balance sheet--this should underscore the downside risks to [the euro]," said Valentin Marinov at Citigroup.

In equity markets, the Stoxx Europe 600 was 0.7% higher, extending a two-day rally.

Stocks added to gains as Wall Street opened strongly, with the Dow Jones Industrial Average topping 17000 points for the first time.

Germany's DAX led the way in Europe, adding 0.9%. France's CAC 40 climbed 0.7%, while outside the euro zone London's FTSE 100 was up 0.6%.

In corporate news, shares in Ingenico climbed after the French card-payment device maker said it agreed to buy GlobalCollect, an Amsterdam-based online-payment service provider, for EUR820 million ($1.12 billion) late Wednesday.

Shares in Balfour Beatty sank sharply after a profit warning from the firm's electrical-engineering division.

In commodities markets, gold was 1.0% lower at $1,317.30 an ounce, and Brent crude oil was 0.3% lower at $110.91 a barrel.

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