European stocks fell for the third week in four as the European Central Bank (ECB) damped speculation it would boost debt purchases, overshadowing an agreement by the region’s leaders to step up measures to fight the debt crisis.
The STOXX Europe 600 Index slipped 0.1 percent to 240.51 this past week. The gauge dropped 1.5 percent on Thursday as ECB President Mario Draghi said the central bank’s bond-purchase program is “neither eternal nor infinite.” The benchmark measure has still rallied 12 percent from this year’s low on Sept. 22 amid optimism policymakers would solve the crisis.
“The ECB signaled clearly, by saying bond buying will be limited, that turning to the ECB is not the solution to the debt crisis,” said Henrik Drusebjerg, a senior strategist at Nordea Bank AB in Copenhagen.
ECB policymakers reduced the eurozone’s benchmark interest rate by a quarter percentage point on Thursday to 1 percent, matching a record low. They also loosened collateral rules so that banks can borrow more from the ECB and announced two unlimited three-year loans.
Draghi said he didn’t signal that the central bank would step up government bond purchases when speaking before lawmakers in Brussels on Dec. 1. He said he was “kind of surprised by the implicit meaning” that was given to his comments when he said the ECB could follow faster fiscal union with “other elements.”
“Draghi appeared to pour cold water on expectations of more bond purchases,” said David Jones, chief market strategist at IG Index in London. “This seemed to push responsibility firmly back on individual governments, a fact that perhaps still doesn’t sit too comfortably with a lot of investors.”
The STOXX 600 pared its weekly decline on Friday as European leaders agreed to boost funds available to assist nations struggling with budget deficits. Policymakers meeting in Brussels added 200 billion euros (US$267 billion) to their crisis-fighting war chest by funneling money from central banks to the IMF. They also tightened rules to curb future debts and watered down demands that bondholders should shoulder losses in bailouts.
In the run-up to the summit, US Secretary of the Treasury Timothy Geithner said Italy had a “strong program” of economic changes and European leaders were moving toward a “fiscal union” that would strengthen the eurozone firewall. Italian Prime Minister Mario Monti presented a 30 billion euro package to reduce the EU’s second-biggest debt to the Italian parliament, including more than 12 billion euros in spending cuts and plans to force workers to delay retirement.