Forex: Euro slips on lack of ECB action

Investors raced to press the sell button on stocks and the euro Thursday, citing dismay at the European Central Bank's lukewarm support for aggressive action to ease a a two-year old debt crisis.

In comments after the central bank's move to cut interest rates to 1 percent, ECB President Mario Draghi poured cold water on market expectations the ECB could step up bond purchases seen as key to stabilizing rising borrowing costs of indebted members of the euro zone.

"This is big - a lot of people, stocks, bonds, currencies, had been counting on the ECB and he's basically pulled the rug out from under the market," said Brian Dolan, chief strategist, Forex.com, Bedminster, New Jersey.

Draghi had said last week further actions could follow if European leaders agreed on tighter budget controls, which analysts had taken to mean the ECB would increase its bond purchases of struggling euro zone members. But Draghi played down that view.

"There's a sense of shock right now because he previously suggested that if EU leaders got things together, the ECB would step up bond purchases and provide support. Draghi is now suggesting he was surprised by that interpretation and that he did not signal big bond purchases."

The Dow Jones industrial average was down 43.48 points, or 0.36 percent, at 12,152.89. The Standard & Poor's 500 Index lost 7.49 points, or 0.59 percent, at 1,253.52. The Nasdaq Composite Index fell 10.72 points, or 0.40 percent, at 2,638.49.

The MSCI All-Country World Index was down 0.8 percent, while the euro last traded down at $1.3323 .

Investors were focusing on a key EU summit beginning later in the day. Hopes had run high that policymakers would agree to a credible solution for stopping the debt crisis from spreading, but Draghi's comments also appeared to dampen hopes that this would spur additional ECB action.

"He basically keeps saying there's not going to be any more quantitative easing, so that is obviously concerning the euro bulls right now given the instability over there of their economy ... It's smacking the market pretty good," said David Lutz, managing director of trading, Stifel Nicolaus Capital Markets in Baltimore.

France and Germany planned to lobby conservative European leaders to back a plan to defuse a crisis now stretching back more than two years. Paris and Berlin need to win backing quickly for their plan to amend the European Union's Lisbon treaty to toughen budget discipline, if they are to have it ready as they hope by March.