Asia stocks drop as ECB vow of action falls flat

AP News
Posted: Aug 03, 2012 12:16 AM
Asia stocks drop as ECB vow of action falls flat

BANGKOK (AP) — Asian stock markets fell Friday after the European Central Bank's policy meeting failed to deliver on bold promises of action to overcome the region's prolonged debt crisis.

A week after vowing to do whatever it takes to keep the euro common currency intact, ECB President Mario Draghi had only more promises and nothing concrete to announce. In the near term, attention is likely to turn to the monthly U.S. payrolls report due Friday which provides a closely watched but lagging indicator of how the world's biggest economy is faring.

Japan's Nikkei 225 stock average was down 1.2 percent at 8,548.73 and Hong Kong's Hang Seng lost 0.9 percent to 19,515.82. Australia's S&P/ASX 200 shed 0.8 percent to 4,233.60 and South Korea's Kospi dropped 0.6 percent to 1,857.61. The Shanghai Composite rose 0.4 percent to 2,119.58.

Investors had hoped the ECB would resume purchases of government bonds to lower the borrowing costs of financially struggling countries such as Spain and announce other measures to calm a crisis that is dragging down global economic growth.

But Germany, which is Europe's biggest economy, is opposed to the ECB operating outside its mandate to control inflation and wants any government bond purchases to be financed by other funds set up to deal with the crisis.

The problem with the German approach, some analysts say, is that Europe's bailout funds lack the firepower to make much of a difference if the financial situation in a big economy such as Spain or Italy dramatically worsens.

A surge in Spain's borrowing costs early last week underlined that a bailout of one of Europe's largest economies is probably unaffordable and could splinter the common currency.

"Draghi made some big statements last week about what the ECB can and cannot do and, well, Germany begs to differ," said analysts at DBS Bank in Singapore.

"The bottomline is that a lot has to happen for the euro to 'get saved' and Draghi's big statements last week didn't move the continent or the markets any closer to that conclusion."

After Draghi's press conference, stocks sank across the U.S. and Europe, the euro fell about 2 cents against the dollar and investors dumped bonds issued by the governments of Spain and Italy.

The Dow Jones industrial average fell 92.18 points to 12,878.88. The Dow had been down as much as 192 shortly after noon. The Standard & Poor's 500 fell 10.14 to 1,365. The Nasdaq composite index lost 10.44 to 2,909.77.

In energy trading, benchmark crude was up 35 cents at $87.48 a barrel in electronic trading on the New York Mercantile Exchange. The contract fell $1.78 to close at $87.13 on Thursday in New York.

The dollar was down 0.1 percent at 78.18 yen. The euro was steady at $1.218.