European stocks pared losses as banks borrowed nearly €490 billion from the European Central Bank at its first offer of three-year loans today.
The Stoxx Europe 600 Index fell less than 0.1 per cent to 238.39 at 3.15pm in London. The gauge earlier rallied as much as 1.4 per cent and dropped as much as 0.7 per cent after the ECB agreed to provide three-year loans to euro-area banks to keep credit flowing to the economy during the sovereign debt crisis.
"It's another slight shrug of the shoulders," said Richard Hunter, the London-based head of equities at Hargreaves Lansdown Plc. "The underlying story hasn't changed with Europe's debt crisis. The hope is that this money finds its way back into sovereign debt in the new year."
National benchmark indexes fell in 11 of the 18 western- European markets. The UK's FTSE 100 slid 0.4 per cent, Germany's DAX fell 0.1 per cent and France's CAC dropped 0.2 per cent.
The ECB had indicated the ultra-cheap, long-term loans were designed to boost trust in banks, free up money markets and tempt banks to buy Italian and Spanish debt.
"Certainly this will help ease liquidity, as will last month's coordinated central bank action on dollar swaps, but it also highlights the gravity of the situation in the euro zone - so don't expect sustained euro gains," said Richard Driver, currency analyst for Caxton FX.
Traders polled by Reuters just hours before the operation expected the ECB to allot €310 billion, up from a forecast of €250 billion in a poll on Monday.
"The number (€489 billion) beats the previous record of €442 billion (the ECB allotted) in June 2009," said Christian Schulz, senior economist at Berenberg Bank.
"It is highly unlikely now that banks in the euro zone will go bust because of a liquidity shortage."
German chancellor Angela Merkel's government reduced its planned bond sales next year to €250 billion, compared with €270 billion proposed in the budget and €283 billion that it sold this year.
The federal government will sell €170 billion in bonds and €80 billion in shorter maturities, the Frankfurt-based Federal Finance Agency said as it presented the provisional bond calendar for 2012.
Reuters
