FRANKFURT, July 26 ― European stock markets turned into a sea of red yesterday after the European Central Bank signalled monetary policy easing ahead, but disappointed investors who sought more clarity on its action to stimulate a slowing economy.

Investors initially cheered the ECB's policy statement, which said the central bank saw rates at present or lower levels through mid-2020 and was considering other easing options, lifting the pan-European STOXX 600 index to its highest level in more than a year.

However, the gains soon evaporated and the index tumbled more than 0.5 per cent after ECB chief Mario Draghi said the risk of a recession in the euro zone was “pretty low”, policymakers did not discuss interest rate cuts at yesterday's meeting and they would wait for more data before “taking action.”

“He made it clear that these things presented in the statement are options and not necessarily forthcoming, so that was a bit of a disappointment for markets,” said Rabobank strategist Bas Van Geffen. “He wasn't as vocal with what the next steps would be at the central bank.”

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Expectations of easier monetary policy have spurred a rally in stocks globally since steep falls in May, but analysts warn it may now be difficult with expectations for interest rate cuts from the ECB and the US Federal Reserve already priced in.

“The danger is that investors have become too complacent, relying fully on accommodative monetary policy, and ignoring the late-cycle risks that are lingering in the background,” said Wolfgang Bauer, fixed income manager at M&G Investments.

German shares suffered the biggest blow, falling 1.3 per cent. A survey showed Germany's business morale plunged in June, stoking fears a manufacturing crisis is pulling Europe's largest economy towards recession.

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Car parts maker Hella, down about 6 per cent, emerged as the latest company to warn of a deteriorating environment in the sector, with weak results from US automaker Ford Motor Co and Japan's Nissan Motor Co adding to woes.

Banks ended 0.2 per cent lower after shooting up earlier in the day on news the ECB discussed tiered deposit rates, which would mean banks are exempted in part from paying the ECB's 0.4 per cent annual charge on their excess reserves, boosting their profits.

Helping limit losses on Britain's FTSE 100 was a 7.7 per cent jump in drugmaker AstraZeneca Plc's shares after it raised its product sales forecast for 2019. Europe's healthcare index was among the few sectors trading higher.

Other gainers included shares of the world's largest brewer Anheuser-Busch InBev, up 4.3 per cent, after reporting the fastest beer sales growth in five years and defence and aerospace group Cobham, which topped the STOXX 600 with a 35 per cent surge after US private equity group Advent International agreed to buy it for £4 billion (RM20.5 billion). ― Reuters