Spanish and Italian government bond yields fell on Tuesday and the euro rose after the head of the European Central Bank hinted at the scope of a much-anticipated bond buying program.
The ECB is expected to unveil its debt-purchasing scheme to tackle the region's debt crisis at a policy meeting on Thursday, where it may also cut rates as the 17-nation euro area heads towards a recession.
European shares were lower, however, having already risen strongly on hopes that central bank action could start the fightback against the euro zone's chronic debt problems.
"There are expectations that the ECB will detail bond buying plans for shorter term maturities and do something on the interest side, but more or less these aspects are priced in (for shares)," said Christian Stocker, equity strategist at UniCredit.
ECB President Mario Draghi told European lawmakers on Monday that buying short-term sovereign debt did not breach any European Union rules, which markets saw as a sign the bank may resume purchases of short-dated Spanish and Italian bonds.
The two-year bond yields of Spain and Italy were both down 12 basis points at 3.39 percent and 2.59 percent, respectively, though moves on longer maturities were much smaller.
The single currency also gained support from Draghi's statement, up 0.2 percent at $1.2615, hovering close to a high of $1.26378 posted last Friday, which was its strongest level since early July.
Read more: http://www.reuters.com/article/2012/09/04/us-markets-global-idUSBRE86F00620120904
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