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Dow slides 1.6% as ECB indicates no increase in bond buying; IBM in focus

Last updated: 22:22 08 Dec 2011 GMT, First published: 21:22 08 Dec 2011 GMT

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U.S. equity markets were lower Thursday afternoon after the European Central Bank's help to prop up troubled eurozone countries wasn't as much as investors had hoped.

The Dow Jones Industrial Average fell 199 points, or 1.6%, to 11,998, the S&P 500 slumped 26.7 points, or 2.1%, to 1,234 and the Nasdaq Composite slid 52.8 points, or 2%, to 2,596.

European Central Bank president Mario Draghi quashed hopes of a massive increase in central bank bond buying as it cut rates, unveiled more measures to ease a credit crisis at banks and warned on eurozone growth.

Draghi’s comments damped speculation that the ECB would expand its bond-buying role to stem the region’s debt crisis as he emphasized "substantial downside risks" for the European economy.

The comments come just as European Union officials are gathering in Belgium for a vital two-day summit, with Germany and France pushing for new EU treaties with stricter fiscal rules. The key proposal on the agenda is how to enforce budgetary discipline with automatic penalties for those eurozone nations that overspend.

Thursday's meeting takes place exactly 20 years to the day since a group of key European leaders met in Belgium to agree on an economic and fiscal union for the region, culminating in the Maastricht Treaty.

Also Thursday, eurozone banks must raise 114.7 billion euros - $152.8 billion - in fresh capital as part of measures introduced to respond to the eurozone's sovereign debt crisis.

German banks need to raise an additional 13.1 billion euros, Italian banks 15.4 billion euros and Spanish lenders must raise 26.2 billion euros in core Tier 1 capital, the European Banking Authority said.

As expected by the market, the European Central Bank lowered interest rates by 25 basis points to 1% as the Bank of England kept its key interest rate unchanged at 0.5%.

South of the border, The Bank of Canada said today in its semi-annual financial system review that risks to the country's financial system have "increased markedly" in the past six months on account of Europe's debt crisis, which is threatening to stall global economic recovery.

Despite the low direct exposure Canadian banks have to the eurozone, the central bank said the debt crisis is the number one threat.

In corporate news, Potash Corp (TSE:POT)(NYSE:POT) and Mosaic Co. (NYSE:MOS) Thursday settled a lawsuit over tolling rights to the Esterhazy mine in Saskatchewan, ending a legal battle between the two major potash producers.

A month before a scheduled trial, US producer Mosaic has agreed to deliver the output it owed to Canada's Potash Corp - the world's biggest producer of potash used to fertilize crops - from the mine for 2011 and 2012.

IT products and services giant IBM (NYSE:IBM) said Thursday that it would buy DemandTec (NASDAQ:DMAN), a cloud-based pricing software company for $440 million in cash, expanding its services targeted at businesses.

Jon Corzine, the former New Jersey governor and CEO of bankrupt derivitives brokerage MF Global is due to testify to a Congressional committee Thursday to explain why his firm collapsed and why an estimated $1.2 billion in client funds is unaccounted for. In a prepared statement, Corzine said he "simply [did] not know" where the money was.

MF Global filed for bankruptcy protection on October 31, the eighth-biggest in US history. Corzine resigned on November 3.

McDonald's (NYSE:MCD) said Thursday that global sales for resturants open at least one year rose 7.4% in November from a year earlier. In the US, comparable sales rose 6.5% on higher breakfast demand, while in Europe, November same-store sales rose 6.5%.

Staying with food, meat producer Smithfield Foods (NYSE:SFD) beat analysts' expectations, posting fiscal second-quarter earnings of 76 cents per share. For the period that ended October 30, Smithfield reported a profit of $120.7 million, or 74 cents per share, down from $143.7 million, or 86 cents a year earlier. Excluding early debt-extinguishment charges and other items, earnings fell to 76 cents from 80 cents last year. Sales jumped 10% to $3.31 billion.

Analysts polled by Thomson Reuters expected earnings of 70 cents on revenue of $3.21 billion.

Costco Wholesale Corp (NASDAQ:COST) saw its fiscal first-quarter profits miss Street estimates on Thursday, despite boosting its membership fee sales during the quarter. For the three months that ended November 20, the wholesaler posted net income of $320 million, or $0.73 per share, up three percent from $312 million, or $0.71 per share, a year ago.

Analysts polled by Bloomberg had expected 80-cents per share in earnings.

On the economic front, jobless claims fell sharply in the latest week to their lowest level since February, the Labor Department said.

The number of initial claims in the week ending December 3 fell by 23,000 to 381,000. The consensus forecast of economists was for claims to fall 9,000 to 393,000.

Commodities

In NYMEX trading, crude fell $1.75 to $98.92 a barrel while gold declined $31.40 to $1,713.40 an ounce.

Europe

In Europe, markets finished sharply lower, with the CAC 40 down 2.53%, while Frankfurt's DAX ended off 2.01% and London's FTSE 100 fell by 1.14%.

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