No shock and awe, market tumbles

IN THE past week, investors had their hopes pumped up and then punctured by European Central Bank president Mario Draghi.

Leading up to Thursday night's ECB policy meeting, Mr Draghi had raised expectations by pledging to do ''whatever it takes'' to keep the eurozone from splintering. His comments inspired a rally on the Australian market, which by Tuesday had surged 3.5 per cent.

By yesterday, however, a chunk of those gains had been erased after Europe's central bankers failed to deliver the expected ''shock and awe''.

Instead, they chose to keep rates on hold, and Mr Draghi appeared simply to reiterate his earlier stance. Europe's market dropped 3 per cent, US stocks shed 0.7 per cent, and the Australian market followed their lead, falling 1.1 per cent yesterday.

For the week, the benchmark S&P/ASX 200 Index rose 11.8 points, or 0.3 per cent, to close at 4221.5.

What's next for Europe? Analysts say things are likely to follow a predictable course: there will be renewed action in troubled ''periphery'' bond markets - particularly Spanish and Italian bond markets - as traders test the resolve of Europe's governments and the ECB's commitment to supporting the euro. So, expect the roller-coaster to continue.

But Westpac chief currency strategist Robert Rennie believes the latest developments in Europe are better than investors realise.

In a note to clients yesterday, he said that since Mr Draghi's first meeting as the ECB president late last year, he had cut the bank's interest rate by 0.25 percentage points he had announced two 36-month, long-term refinancing operations he had cut the collateral requirements for Europe's banks and cut their reserve ratio from 2 per cent to 1 per cent he had cut the deposit rate to zero (something the US Fed has not dared do) and, on Thursday, he took some ''notable steps towards proper quantitative easing'', one of which opened the possibility that the ECB might relinquish its seniority status in future bond buying programs.

''Overall, there was probably enough [from the ECB meeting] to reduce the risk of a eurogeddon but not enough to satisfy buyers of risky assets,'' Mr Rennie wrote. ''[But] with the fullness of time, markets will come to understand that there are deep and meaningful developments afoot at the ECB.''

Locally for the week, Telstra was up 6? at $4.02, hitting $4 for the first time in four years, as the telco started to benefit from its recent involvement with the national broadband network, as well as mobile and broadband growth.

BHP Billiton fell 12?, to $31.30, after the $US2.84 billion write-down in the value of its US shale gas assets.

CSL dropped $1.98 to $40.28 after the head of the blood products and vaccines maker said he would leave the company next year, ending

23 years in the job.

Consolidated Media rose 5? to $3.44 after News Ltd won regulatory approval for its acquisition of ConsMedia.

With AGENCIES