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European Markets Close Lower After ECB Policy Announcement

European markets ended mostly lower on Thursday after a somewhat volatile session. Investors were reacting to the European Central Bank's monetary policy announcement and tracking news on Brexit and coronavirus updates, besides digesting the latest batch of economic data from the zone.

The ECB left its key interest rates and the size of asset purchases unchanged, as expected, and reiterated that it stands ready to make adjustments to its tools when needed.

The pan European Stoxx 600 declined 0.59%. The U.K.'s FTSE 100 edged down 0.16%, Germany's DAX slid 0.21% and France's CAC 40 ended down 0.38%, while Switzerland's SMI shed 0.18%.

Among other markets in Europe, Austria, Belgium, Denmark, Finland, Iceland, Ireland, Netherlands, Norway, Poland, Portugal, Spain, Sweden and Turkey ended weak, while Czech Republic, Greece and Russia closed higher.

In France, Unibail Rodamco, Vinci and Veolia lost 2.5 to 3%. Publicis Groupe, Renault, Sanofi and ArcelorMittal also closed notably lower.

On the other hand, Peugeot rallied nearly 4%. Sodexo, Kering, Valeo and Atos gained 1 to 1.5%.

In the German market, Munice RE and Covestro lost more than 2% each. Thyssenkrupp, SAP and Bayer ended lower by 0.8 to 1%.

Among the gainers in the CAC 40 index, Henkel moved up nearly 4.5%. Continental advanced 1.7% and Adidas gained 1%.

In the UK market, Morrisons shares declined sharply after the group reported a notable drop in half-yearly earnings.

Meggitt, Ds Smith, J Sainsbury, BHP Group, Antofagasta, Rolls-Royce Holdings, Standard Chartered and Bunzi lost 2 to 5%. Tesco, Barclays and British American Tobacco also ended sharply lower.

TUI shares climbed nearly 5%. Royal Mail ended stronger by about 3%, while Scottish Mortgage, Flutter Entertainment, Hiscox and Persimmon gained 1 to 2%.

The ECB's main refi rate was retained at a record low zero and the deposit rate was kept at -0.5%, in line with expectations. The lending rate was left unchanged at 0.25%.

The ECB said the Governing Council expects the key interest rates to remain at their present or lower levels until it has seen the inflation outlook robustly converge to a level sufficiently close to, but below, 2 percent within its projection horizon, and such convergence has been consistently reflected in underlying inflation dynamics.

The size of the pandemic emergency purchase programme (PEPP) was left unchanged at EUR 1,350 billion.

ECB President Christine Lagarde said in a press conference after the policy announcement that policymakers are watching the appreciation in the euro closely for any impact on prices, and reiterated that the bank stands ready to adjust all its tools when needed to support the fragile economic recovery in the euro area.

The Governing Council extensively discussed the implications of a strong euro in the latest policy meeting, Lagarde said in the post-decision press conference.

"We have to monitor carefully such a matter," she said. However, policymakers did not see an immediate need to act on it, she added, and reiterated that the ECB does not target the exchange rate.

Meanwhile, emergency talks between the U.K. and EU kicked off over the former's plan to undercut parts of the Withdrawal Agreement. European Commission Vice President Maros Sefcovic has expressed concerns about the plan and the EU has warned that if the UK new bill was to be implemented it will constitute a serious violation of the Withdrawal Agreement and of international law.

In other economic news, UK house prices increased at the strongest pace since 2016 as almost all regions logged price increases, survey data from the Royal Institution of Chartered Surveyors, or RICS, showed.

The house price balance rose to +44% in August, the highest reading since 2016, from +13% registered in July. The expected balance was +25%.percent.

France's industrial production expanded for the third straight month but the pace of increase was the weakest in the current sequence of growth, the statistical office Insee reported.

Industrial production climbed 3.8% month-on-month, slower than the 13% increase posted in June. This was also weaker than the expected increase of 5%.

Likewise, manufacturing growth eased to 4.5% from 14.8% a month ago. Mining and quarrying output remained flat in July and construction output expanded 5% in July.

Italy's industrial production grew more than expected in July driven by capital and intermediate goods, according to data from the statistical office Istat. Industrial output climbed 7.4% from June, when it was up 8.2%. Economists had forecast a monthly growth of 3.5%.

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