European stocks dip as ECB seen holding rates

 

The euro hit four-week high against a weaker dollar on Thursday and stocks edged down ahead of a European Central Bank meeting at which no change in rates is expected although economic forecasts may be tweaked.

 

The ECB cut its main interest rate to a record low 0.5% in May and is likely to sit tight as it waits for signs of the second-half economic recovery it has predicted.

 

That means the main focus will be President Mario Draghi's subsequent news conference, during which he is likely to be questioned on the future direction of policy.

 

"We think he (Draghi) will keep the door open for more easing but it's not the time to do it today," said Piet Lammens, a strategist at KBC in Brussels.

 

The stronger conviction that rates would not be cut following better economic data for May lifted the euro to $1.3127, its highest level since May 9 and up 0.2% on the day. The euro's gains dragged the dollar index to a four-week low of 82.394.

 

A lack of any surprises the ECB or at an earlier Bank of England policy meeting, will see the market's focus quickly switch to Friday's US. payrolls report which could determine when the Federal Reserve begins tapering its bond buying.

 

Growing uncertainty over whether the Fed will roll back its stimulus this year has kept all markets on edge recently, causing Asian shares to slip to fresh 2013 lows on Thursday.

 

In the Europe the broad FTSEurofirst 300 index extended its 1.5% fall of Wednesday with a further loss of 0.1 % in early trade. However, the index remains up some 6 % for the year to date.

 

London's FTSE 100, and Frankfurt's DAX were also down 0.1%.

 

In the fixed income market, German Bund futures were mostly steady before the ECB meeting with trader also watching Spanish and French bond auctions which are expected to meet good demand from yield hungry investors but could see yields rise again.