European shares closed higher on Thursday after President Mario Draghi of the European Central Bank (ECB) announced an extension of its bond-buying program - but at smaller monthly purchases - a move seen by some investors as a first sign that the bank is getting ready for tapering.
ECB surprise announcement
European markets
The pan-European Euro Stoxx 600 index moved south immediately after the announcement but bounced back and ended up 1.23 percent.
The ECB decided to continue with its quantitative easing (QE) program at the current monthly pace of 80 billion euros ($86.41 billion) until the end of March 2017. However, it announced it was extending the monetary stimulus for nine months at smaller monthly purchases.
From April 2017, the monthly purchases would be reduced to 60 billion euros until the end of December 2017. The ECB said it would then assess if QE would need to be further extended.
"If, in the meantime, the outlook becomes less favorable or if financial conditions become inconsistent with further progress towards a sustained adjustment of the path of inflation, the Governing Council intends to increase the program in terms of size and/or duration," the bank said in a statement.
Banking stocks jumped more than 2 percent on the news and closed among the best performers with all other sectors also closing in positive territory.
Italy asks for more time on BMPS
The ECB decided to keep its deposit and marginal lending facility rates unchanged.
Carsten Brzeski, chief economist at ING Germany said in a note: "Even without calling this tapering, the ECB just announced tapering. It is the combination of extending and tapering that we thought would not yet happen as it could risk an unwarranted increase in bond yields."
President Draghi said that growth in the euro zone jumped 0.3 percent in the third quarter of this year and that the economy should continue growing in the final quarter of the year. He added that headline inflation should pick up to 1.3 percent in 2017 from 0.2 percent in 2016.
Italian authorities have requested more time from the ECB to fix the capital issues of its third largest lender – Banca Monte Dei Paschi di Siena, according to the Financial Times. The bank outlined in a letter to the ECB that the current political instability has made it very difficult to proceed with the recapitalization process, according to the report. Its shares were up by 2.1 percent on Thursday.
Draghi said Thursday that the vulnerabilities of Monte Dei Paschi as well as Italy's banking system as a whole would be resolved by the country's government.
Meanwhile, in the U.S., the pared earlier losses to trade slightly higher at the European close while the broader S&P500 was down marginally by around 0.03 percent. U.S. jobless claims fell to 258,000 in the week ending December 3 according to U.S. labor data.
Capita shares plummet
Basic resources closed among the best-performing sectors, climbing more than 2.2 percent. Higher metal prices on Thursday morning helped the mining stocks alongside positive trade data from China overnight.
Russia said that a consortium of Glencore and Qatar's sovereign wealth fund acquired a 19.5 percent stake in its top state-controlled oil company, Rosneft, in a deal worth $11.3 billion.
Stocks in the oil and gas sector fell more than 0.1 percent as investors harbored doubts over whether non-OPEC and OPEC members will reach a final output cap deal at a meeting over the weekend. However, the sector recovered to close 0.58 percent higher.
Shares of Sports Direct ended down by more than 7.7 percent on Thursday after the company reported disappointing results for the first half of 2016.
Also down on Thursday were Ladbrokes and William Hill, with the shares of the latter closing more than 6 percent lower. A group of U.K. lawmakers is due to present Thursday stricter rules on betting machines.
Capita shares plummeted on Thursday after the outsourcing group announced a second profit warning in less than three months. The company reported it would now have to start to sell some of its assets and shares had slumped over 13 percent at the close.