European stock exchanges wilted on Thursday following a decision by the European Central Bank to leave interest rates unchanged and remarks by its president suggesting an easing in bank credit policies was not in the offing.
The London FTSE 100 index shed 1.49 per cent to close at 5,766.40, while in Paris the CAC 40 fell 1.65 per cent to finish at 4,678.05. The Frankfurt Dax lost 1.38 per cent to reach 6,591.31.
The Euro Stoxx 50 index of leading eurozone shares fell 1.81 per cent to close at 3,617.68.
On the currency market the dollar extended its losses against the euro, tumbling to another record low after the ECB left its rates unchanged and said fighting inflation was a priority.
In late European trade, the euro jumped to 1.5378 dollars, beating the previous record of $1.5373 set earlier in the day. It later stood at $1.5360.
The ECB cut its projection for growth and increased its forecast for inflation. And bank president Jean-Claude Trichet made it clear that keeping inflation down in the medium term was "our primary objective."
That suggested that the ECB would not cut rates soon, meaning the gap between European and US rates was set to widen as the Federal Reserve continues to reduce the cost of borrowing, analysts said.
"Trichet's comments were hardly encouraging and showed that he was in no hurry to lower rates," commented a Paris trader.