Summary The European Union is experiencing a newfound confidence that could unlock demand and investment
LONDON (AFP) - The euro rebounded against the dollar Tuesday after European Central Bank chief Mario Draghi struck an optimistic tone on the eurozone economy.
European stock markets slid meanwhile as investors nervously awaited a key speech from Federal Reserve chief Janet Yellen in London.
"A busy day of central bank speeches is going to keep investors on edge, with the first one from Mario Draghi already having an impact," said Chris Beauchamp, chief market analyst at trading firm IG.
The European Union is experiencing a newfound confidence that could unlock demand and investment, Draghi said, while insisting on "prudence" in any monetary adjustments.
Speaking at a central bank forum in the Portuguese resort town of Sintra, Draghi said that for years uncertainty over whether the eurozone would seriously reform labour markets had acted as a brake on investments and confidence.
The ECB s bond-buying stimulus programme, worth 60 billion euros ($67 billion) each month, along with record-low interest rates have helped ward off the threat of deflation, he said.
"The euro is climbing again, buoyed by comments from Draghi who highlighted the strengthening and broadening recovery in the region," said Oanda analyst Craig Erlam.
The eurozone currency briefly went above $1.13, a level not seen since last August.
"While Draghi is among the more dovish policy makers at the central bank, there has been persistent speculation that the ECB will announce further reductions in asset purchases later this year -- and a more positive assessment of the economy from the president may suggest he is willing to back it."
Fed outlook
Companies with high debt levels saw their shares suffer on expectations their financing costs will rise, said Jasper Lawler, a senior market analyst with London Capital Group.
"Concern rates could be headed higher quicker than previously thought hurt the shares of Europe s debt-heavy utility firms," he said.
Yellen will speak in London later Tuesday before heading to a central bankers conference in Portugal, with her remarks pored over for clues about the Fed s plans.
Expectations for another increase in US borrowing costs were fanned after the head of the New York Fed, Bill Dudley, suggested policymakers could widen their parameters when deciding the course for monetary policy.
And San Francisco Fed president John Williams warned that the world s top economy could overheat if rates were not lifted at the right time.
This followed Yellen s increasingly hawkish tone and the bank s plan to wind down its bond-buying programme to suck excess cash out of financial markets.
Business was also subdued by concerns about the future of US President Donald Trump s economic agenda as he struggles to push through a controversial health bill.
Wall Street staged a modest recovery approaching midday in New York, reversing an earlier weak trend.
But shares in Google parent Alphabet dropped by more than a percent after the EU hit the tech giant with a record 2.4-billion-euro fine for illegally favouring its shopping service in search results.
"The Google fine is another reason to cast doubt over the sustainability of sky-high valuations within the technology sector," said LCG s Lawler.
Key figures around 1540 GMT
Euro/dollar: UP at $1.1295 from $1.1181 at 2100 GMT on Monday
Dollar/yen: UP at 112.36 yen from 111.87 yen
Pound/dollar: UP at $1.2778 from $1.2721
London - FTSE 100: DOWN 0.2 percent at 7,434.36 points (close)
Paris - CAC 40: DOWN 0.7 percent at 5,258.58 (close)
Frankfurt - DAX 30: DOWN 0.8 percent at 12,671.02 (close)
EURO STOXX 50: DOWN 0.7 percent at 3,538.32
New York - Dow: UP 0.1 percent at 21,427.46
Tokyo - Nikkei 225: UP 0.4 percent at 20,225.09 (close)
Hong Kong - Hang Seng: DOWN 0.1 percent at 25,839.99 (close)
Shanghai - Composite: UP 0.2 percent at 3,191.20 (close)
Oil - Brent North Sea: UP $1.08 at $47.12 per barrel
Oil - West Texas Intermediate: UP 98 cents at $44.36
