Stock markets in Europe and the U.S. fell Wednesday after the European Central Bank loaned a record amount to the continent's banks in an effort to bolster Europe's stressed financial system.
The ECB loaned a massive euro489 billion ($639 billion) to 523 banks for an exceptionally long period of three years in an effort to steady a financial system under pressure from the eurozone debt crisis. It was the biggest ECB infusion of credit into the banking system in the euro's 13 year history, surpassing the euro442 billion in one-year loans from June, 2009, when the financial system was struggling after the collapse of U.S. investment bank Lehman Brothers.
"It seems the sheer amount of money demanded by banks has shocked investors," said Simon Furlong, a trader at Spreadex.
Following early gains, stocks in Europe fell. The FTSE 100 index of leading British shares closed down 0.6 percent at 5,389.74 while Germany's DAX fell 1 percent to 5,791.53. The CAC-40 in France ended 0.8 percent lower at 3,030.47. The euro similarly gave up early gains, and was trading 0.6 percent lower at $1.3038.
In the U.S., the Dow Jones industrial average was down 0.5 percent at 12,041 while the broader S&P 500 index fell 0.6 percent to 1,234. The S&P was led lower by Oracle Corp., which fell almost 11 percent after the business software maker said it struggled to close deals. The results seemed to reinforce worries that businesses and the government may cut back technology spending.
Most attention centered on the ECB's action, which is intended to make sure that banks have enough ready cash to operate and keep on loaning to businesses so that a credit crunch does not choke off economic growth. Many economists think the eurozone may be headed for at least a mild recession in coming months.
The credit infusion only treats one of the symptoms of the debt crisis. It does not remove the reasons banks remain wary of lending to each other _ especially, their thin levels of capital reserves against potential losses. And it doesn't cut the large levels of debt carried by governments.
European officials have said banks need to raise euro115 billion ($150 billion) in new capital _ but finding that money is not an easy task in the current environment of fear. Investors are leery of putting more money into banks. It would be politically unpopular for governments to do it, and their finances are stressed as well.
"While today's ECB action does ease some of the bank funding difficulties, it cannot address the sovereign debt crisis which is the root of those funding issues," said Vassili Serebriakov, an analyst at Wells Fargo Bank.
Asian markets rose earlier despite ongoing concerns over a possible power struggle in North Korea following the death of Kim Jong Il. Seoul's main index led the advance, ending 3.1 percent higher on the day at 1,848.41.
Tokyo's main index gained 1.5 percent to 8,459.98 points while Hong Kong's Hang Seng added 1.6 percent to 18,368.6. However, China's benchmark Shanghai Composite Index ended down 1.1 percent at 2,181.15.
Meanwhile, oil rose moved closer to $98 a barrel Wednesday after a report showed U.S. crude supplies fell more than expected, a sign demand may be improving. By early afternoon in Europe, benchmark crude for February delivery was up $1 to $98.24 a barrel in electronic trading on the New York Mercantile Exchange.
AP Business Writer Joe McDonald in Beijing contributed to this article.