ECB rates unchanged, hints at bond purchases

European Central Bank President Mario Draghi said Thursday the bank would make a new effort to buy government bonds to drive down the high borrowing rates squeezing the continent's indebted governments. And he urged leaders of the 17 countries that use the euro to use their bailout fund to do the same.

The message from the ECB was clear: Europe's financial crisis is getting worse and requires more forceful remedies than leaders have so far been able to come up with.

Financial markets were disappointed that there was no immediate action and that the ECB had few specifics to offer on its emerging plan. Stocks were sharply lower across Europe, while borrowing costs for heavily indebted countries such as Spain and Italy crept higher.

Draghi said ECB policymakers will work on a more detailed plan in coming weeks, including how much money to put into the effort, which would aim to lower the interest rates on governments' short-term bonds. The ECB chief's remarks followed a decision by the ECB to keep its benchmark short-term interest rate unchanged at a record low 0.75 percent.

"There wasn't any specific instance that led us to the decision we had today, just a sense of the worsening crisis and the worsening consequences," Draghi said. He said a recent spike in interest rates for the short-term bonds of countries such as Spain and Italy was a "symptom" of the stresses being felt across the region.

The negative reaction in markets was strongest in Spain and Italy, the third- and fourth-largest economies in the eurozone and the countries most vulnerable to high borrowing costs. The interest rate, or yield, on Spain's 10-year bonds rose above 7 percent, while the country's main stock index plunged by nearly 5 percent. The yield on Italy's 10-year bonds climbed above 6 percent and the country's main stock market index sank by more than 4 percent. The euro fell 0.2 percent to $1.2215.

In the U.S., the Dow Jones industrial average fell 144 points to 12,827.