Spanish bourse nosedives as ECB dashes rate hopes

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Trichet says bank's focus remains on wrestling inflation

24 January 2008

MADRID - The Spanish stock market dropped sharply again yesterday in what was another roller-coaster rise for the European bourses in general as remarks from European Central Bank President Jean-Claude Trichet dashed hopes for interest rate cuts this side of the Atlantic anytime soon.

The Spanish blue-chip Ibex 35 closed down 4.56 percent at 12,254 points, its lowest level in 16 months, as the recent turmoil continued in the financial markets. The pattern was similar across the euro zone. In Germany, the Dax 30 shed 4.88 percent, and the French benchmark CAC 40 lost 4.25 percent. In London the FTSE-100 fared relatively better as it gave up 2.28 percent.

Trichet said that the ECB's focus remains on quelling inflation, thereby seeming to rule out the ECB following in the footsteps of the US Federal Reserve, which on Tuesday announced a massive 75-basis-point cut in its overnight lending rate to 3.50 percent, as it sought to ward off a recession in the world's largest economy.

"In demanding times of significant market correction, it is the responsibility of the central bank to solidly anchor inflation expectations to avoid additional volatility in already highly volatile markets," Trichet told a European Parliament conference on financial supervision in Brussels.

Inflation is currently running at 3.1 percent in the euro zone, well above the ECB's medium target of a rate close to but below 2 percent.

Trichet ruled out the possibility of a recession in Europe and reiterated the ECB's forecast for growth of around 2 percent, albeit with downside risks. "We have a base scenario and at this stage I am not going to modify this base scenario."

[Copyright EL PAÍS / Adrián Soto 2008]

Subject: Spanish news

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