GLOBAL MARKETS-Stocks, euro fall as markets seek ECB detail

by on July 27, 2012 9:40 am BST

Fri Jul 27, 2012 5:40am EDT

* FTSEurofirst 300 gives up early gains

* Spanish 10-year yields trim fall

* German Bundesbank says still against bond buying

* ECB, U.S. Fed meets next week in focus

By Simon Jessop

LONDON, July 27 (Reuters) – European stocks and the euro
fell on Friday as markets, hungry for detail on any ECB plan to
repel a debt attack on Spain and Italy, grew cautious after
Germany’s Bundesbank restated its doubts about buying bonds of
troubled euro zone nations.

European Central Bank President Mario Draghi’s promise on
Thursday to do whatever it takes within the bank’s mandate to
defend the single currency at first drove demand for riskier
assets and gave some respite to Spain’s battered treasury.

But the gains reversed by mid morning on Friday,
particularly after the Bundesbank said it viewed “in a critical
fashion” the dormant Securities Market Programme (SMP) under
which the ECB had bought bonds issued by weaker euro zone
governments on the secondary market.

Draghi’s comments had prompted speculation that the ECB
might resume its bond-buying programme, which German officials
have much criticised.

After surging nearly 2.5 percent in the previous session,
the FTSEurofirst 300 index of leading European shares had given
up the early gains on Friday to trade down 0.1 percent by 0909
GMT, although world stocks were up 0.3 percent.

Asian indexes had posted solid gains overnight.

Even before the comments from the German central bank, the
lack of detail in Draghi’s speech had made many investors
cautious before an ECB policy meeting next week – and one of the
Federal Reserve, which some hope will produce a new indications
of U.S. plans for more stimulus.

“I’m still a seller into the rally. He’s (Draghi) got to do
it within the framework of the European Union, and it hasn’t
worked so far,” said Bastion Capital’s head of equities, Adrian

The euro was down 0.2 percent at $1.2255.

“I can’t imagine Draghi would have made his comments without
some sort of nod that temporary measures could be made, but this
does not add up to solving the euro zone’s problems, so I think
the peak has already been seen,” Neil Mellor, currency
strategist at Bank of New York Mellon, said before the
Bundesbank’s comments.

Spanish 10-year debt yields continued to feel the benefit of
the Draghi speech, however, staying beneath the 7 percent yield
that is considered unaffordable in the longer term, albeit off
the lows, at around 6.95 percent.

“They (the ECB) obviously want to support the market but
they run the risk of causing massive disappointment if they
don’t follow through with something,” said Charles Diebel, head
of rates strategy at Lloyds Bank.

“Spanish yields can go down about 100 basis points if we
really think that something big is coming. But for now the jury
is out. They probably won’t rally that much more, maybe another
20-25 basis points but that should be about it.”