Euro drops as ECB's Draghi promises vigilance

LONDON (AP) ? The euro fell sharply on Thursday after the European Central Bank said it would monitor the currency's value and economic impact, while global stock markets tracked lower after Wall Street's open.

After the ECB kept interest rates on hold, as expected, President Mario Draghi told reporters at a press conference that the bank would "want to see if the (euro's) appreciation will alter our assessment as far as price stability is concerned."

Although he indicated no concrete action, the comment fueled market speculation that the strong euro, which could cause an excessive drop in inflation, might make the ECB more likely to cut interest rates in coming months. Lower rates tend to weaken a currency.

The 17-country euro lost all its previous gains to tumble 1.1 percent lower to $1.3383.

Stock markets soon also dropped with Britain's FTSE 100 sliding 1.1 percent to 6,228.42 and France's CAC 40 falling 1.2 percent to 3,601.005. Germany's DAX fared slightly better, ending 0.1 percent higher, at 7,590.85, thanks to upbeat corporate news from carmaker Daimler.

The selling intensified after Wall Street opened lower. The Dow was down 0.9 percent at 13,864 while the broader S&P 500 shed 0.8 percent to 1,508.62.

Earlier in Asia, stocks also ended the day mostly lower.

Japan's Nikkei 225 led the way with a 0.9 percent drop to close at 11,357.07 as investors cashed in their gains after the benchmark rose to its highest since September 2008 in the previous session.

South Korea's Kospi dipped 0.2 percent to 1,931.77 while Hong Kong's Hang Seng dropped 0.3 percent to 23,177. Benchmarks in India, New Zealand, Singapore and Thailand also fell but Australia's S&P/ASX 200 gained 0.3 percent to 4,935.70.

Asia's other big loser was the benchmark Shanghai Composite Index in mainland China, which ended 0.6 percent lower at 2,418.53. China's smaller Shenzhen Composite Index rose 0.5 percent to 956.73.

Chinese investors were most likely closing out their positions ahead of the Lunar New Year holiday next week. Holidays in China can be an especially uncertain time for investors because authorities in Beijing often use the occasion to announce new policy measures.

Several analysts have forecast that Japan's currency-driven market rally might soon be over as investors bet there's little room for the country's currency to weaken further. Japan's Prime Minister Shinzo Abe has insisted that the country's central bank act more aggressively to ease monetary policy to help spur economic growth, but investors are worried that this will have a knock-on effect to every other currency in the world.

A weaker yen benefits Japan's export manufacturers because it makes their products cheaper in overseas markets. Sony Corp. rose 2.6 percent in Tokyo after it reported a smaller fourth quarter loss as sales inched up thanks mostly to the weaker yen.

The dollar was down 0.4 percent against the Japanese yen, at 93.27 yen.

In energy markets, benchmark crude for March delivery fell 69 cents to $95.93 per barrel in electronic trading on the New York Mercantile Exchange. The contract fell 2 cents to end at $96.62 on Wednesday.

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Kelvin Chan in Hong Kong contributed to this report.

Source: http://news.yahoo.com/euro-drops-ecbs-draghi-promises-vigilance-172151546--finance.html

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