By Carla Mozee, MarketWatch

'Draghi and the ECB are trying to avoid a taper tantrum scenario,' analyst says

European stocks reversed course and closed lower Thursday as investors weighed the possibility the European Central Bank is moving closer to reducing monetary stimulus for the eurozone economy that has helped pushed equities to record highs.

German, French, Spanish and Italian shares flipped down at the same time the euro leapt to its highest in more than a year against the U.S. dollar. Those moves were made on the prospect that the ECB will soon say it's time to start winding down its massive program of bond purchases.

The Stoxx Europe 600 finished with a 0.4% loss at 384.07, retreating from an intraday rise of 0.5%. Meanwhile, the euro rallied to a high of $1.1657, the first time the euro could buy more than $1.16 since May 2016, according to FactSet data.

European stocks can be hurt by a stronger euro, as strength in the shared currency can make products sold by European exporters more expensive for overseas customers to purchase.

The ECB on Thursday held interest rates steady, as expected.

Of greater interest to markets, ECB Chairman Mario Draghi at a Thursday press conference said while there's been improvement in the eurozone economy, a substantial degree of monetary accommodation was still needed and that the bank will continue buying government bonds at a pace of EUR60 billion a month until December, as previously planned.

Live blog of Draghi's press conference recapped here (http://blogs.marketwatch.com/thetell/2017/07/20/ecb-live-blog-mario-draghi-walks-the-policy-tightrope/)

The bank boss did say policy makers will discuss changes to quantitative easing in the "autumn," but wouldn't say whether the September meeting falls into that scope.

The euro soared as traders decided to brush past Draghi's accommodative tone, said Oanda's senior market analyst Craig Erlam.

"Draghi and the ECB are trying to avoid a 'taper tantrum' scenario. They don't want to be seen to be tapering, and taper I think is a dirty word at the ECB after what happened with the [Federal Reserve] back in 2013. There was a clear determination [by Draghi] to avoid similar language despite the fact that people are pushing for them," to scale back the ECB's bond-buying program, Erlam said.

The so-called taper tantrum was a run-up in yields after then-Federal Reserve chief Ben Bernanke warned the central bank was preparing to halt its quantitative easing purchases. Yields rise as prices fall.

Read:Why Mario Draghi can't back down from ECB taper hints (http://www.marketwatch.com/story/why-mario-draghi-cant-back-down-from-ecb-taper-hints-2017-07-19)

"Draghi's trying to send as dovish a message as possible while leaving the door open to tapering at future meetings. Markets aren't buying it anymore. They are looking for the meaning behind the message," Erlam said.

The yield on Germany's 10-year bund fell less than 1 basis point to 0.528%, but earlier rose to 0.559%, according to Tradeweb data.

Individual indexes: European equities managed to pare deeper losses by the end of trade as the euro came off session highs. France's CAC 40 index closed down 0.3% at 5,199.22.

In Frankfurt, the DAX 30 index , which is heavily weighted by exporters, ended down 4.8 points at 12,447.25.

Spain's IBEX 35 shed 0.2% to end at 10,564.80, and Italy's FTSE MIB fell 0.2% to finish at 21,447.25.

But the U.K.'s FTSE 100 ended higher by 0.8% at 7,487.87 (http://www.marketwatch.com/story/ftse-100-lifted-as-unilever-advances-with-ecb-meeting-in-focus-2017-07-20), aided by a weaker pound .

The Stoxx 600 on Wednesday closed up 0.8%, (http://www.marketwatch.com/story/european-stocks-advance-helped-by-upbeat-earnings-2017-07-19) aided by well-received earnings reports.

(http://blogs.marketwatch.com/thetell/2017/07/20/ecb-live-blog-mario-draghi-walks-the-policy-tightrope/)Earnings season: A new wave of financial updates rolled in on Thursday, with Publicis Groupe SA (PUB.FR) shares rallying 4.6%. The French advertising heavyweight confounded expectations by posting a rise in second-quarter profit (http://www.marketwatch.com/story/publicis-profit-up-as-us-revenue-turns-positive-2017-07-20) as U.S. revenue turned positive.

Unilever shares (ULVR.LN) picked up 1.7% after the maker of Ben & Jerry's ice cream and other consumer goods reported a sharp rise in first-half profit (http://www.marketwatch.com/story/unilever-posts-profit-gain-lifts-margin-guidance-2017-07-20), making good on its vow to improve performance after rebuffing a Kraft Heinz Co. (KHC) bid.

But on the downside, shares of Nordea Bank AB (NDA.SK) dropped 5.2% after the Swedish bank's second-quarter profit of 743 million euros ($855.7 million) missed expectations (http://www.marketwatch.com/story/nordea-profit-falls-domicile-decision-in-sept-2017-07-20).

 

(END) Dow Jones Newswires

July 20, 2017 12:04 ET (16:04 GMT)

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