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Europe steady on rates; indexes fall

January 24, 2008|Geraldine Baum | Times Staff Writer

PARIS — The head of the European Central Bank on Wednesday shot down hopes that the bank would join the U.S. Federal Reserve in easing credit, fueling a fresh sell-off in stocks across the region.

In a speech before the European Commission, central bank President Jean-Claude Trichet made it clear that damping inflationary pressures remained his top priority.

"I trust that in all circumstances, but even more particularly in demanding times of significant market correction and turbulences, it is the responsibility of the central bank to solidly anchor inflation expectations," he said.

European stock markets, which had rallied at the outset after big gains in Asian markets, quickly slumped into the red. The French market fell 4.2% after rebounding 2.1% on Tuesday after the Fed's interest rate cut of three-quarters of a point. The Spanish market dived 4.6% after a 1.7% advance the previous day.

Germany's DAX stock index ended down 4.9%, its seventh straight decline.

Europe, like much of the world, has faced surging food and energy costs that have lifted overall inflation. ECB policymakers have held their key short-term rate at 4% since June, taking the view that easier credit could boost inflation by stoking the economy.

They also have been trying to discourage trade unions from demanding sharply higher wages in contract talks.

Still, many analysts believe the ECB will be forced by global economic and financial market turmoil to follow the Fed.

"I think at some point Trichet will have to lower rates," said Adrien Pichoud, an economist at investment firm Global Equities.

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geraldine.baum@latimes.com

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