ECB cuts rate, has no bigger bond-purchase plan

The European Central Bank took modest steps Thursday to help revive Europe's economy and financial system, including cutting a key interest rate. But President Mario Draghi said there is no existing plan for large-scale government bond purchases, as markets had been hoping.

The ECB cut its key interest rate by a quarter percentage point to 1 per cent and announced it would extend longer-term emergency loans to banks and other measures to stimulate lending and investing.

All you need to know about Euro debt crisis

Stocks and the euro fell heavily on Draghi's remarks, which lowered expectations that the central bank is preparing to take much more aggressive action as the eurozone economy slides toward recession because of the debt crisis.

It was the second rate cut in only five weeks for the bank, the top monetary authority for the 17 nations that use the euro. But markets are hopeful that the ECB will soon take more aggressive steps to save the euro.

European stocks and the euro were steady after the rate decision, which had been expected. ECB President Mario Draghi has said the eurozone economy could be heading for a mild recession. The rate cut is intended to promote economic growth and business optimism that policymakers are tackling the crisis. A slowing economy would only make it harder for European governments to pay down debt.

Analysts said the rate cut would have only a modest impact, at best. "I thought they'd be more aggressive and cut by 50 basis points because the economy looks like it's heading for recession and the banking sector is facing big pressures," said Neil MacKinnon, global macro strategist at VTB Capital.

Draghi hinted in a speech last week that further bond purchases were possible if Europe's leaders can come up with a credible plan to enforce budget discipline among the 17 countries that use the euro. That is the goal of an EU summit in Brussels that begins Thursday evening.

Large-scale bond purchases would help drive down government borrowing costs, which have risen to crippling levels in Italy and Spain, Europe's third- and fourth-largest economies.