ECB keeps rates unchanged as demand for Spanish bonds falls short

The ECB left interest rates unchanged on Wednesday. Bloomberg reports:

European Central Bank President Mario Draghi quashed talk of an early exit from emergency stimulus measures as Spain struggled to borrow in financial markets, a reminder of the risk that the region’s debt crisis could flare again.

Speaking just hours after Spanish Prime Minister Mariano Rajoy warned his country faces “extreme difficulty,” Draghi said yesterday that talk of the ECB starting to withdraw its support for euro-area banks is “premature.” At the same time, in a nod to growing inflation concerns in Germany, he said the ECB won’t hesitate to counter price risks if needed. Policy makers left their benchmark rate at a record low of 1 percent.

Market action on Wednesday suggested that investors remain concerned about Europe's debt problems. Stocks fell, with the STOXX Europe 600 Index in particular falling 2.1 percent. Spain's 10-year yield rose 24 basis points to 5.69 percent after the government managed to sell just 2.59 billion euros of bonds due between January 2015 and October 2020 out of a planned maximum of 3.5 billion euros.

Economic data from the euro area on Wednesday had been mixed. Retail sales fell 0.1 percent in February but Markit's services PMI for the region rose to 49.2 in March from 48.8 in February, helping to cushion the fall in the composite index to 49.1 in March from 49.3 in February, compared to a preliminary estimate of a fall to 48.7.

Also on Wednesday, Germany reported that factory orders rose 0.3 percent in February, rebounding only slightly after a 1.8 percent fall in January and still 6.1 percent lower than a year ago.

Data elsewhere on Wednesday were somewhat more positive.

In the US, a report from the Institute for Supply Management showed that the services sector continued to grow in March as its non-manufacturing index came in at 56.0, down from a one-year high of 57.3 in February. Meanwhile, ADP reported that US private employment rose by 209,000 in March.

The services sector also grew in the UK in March. The Markit/CIPS services PMI rose to 55.3 from 53.8 in February.