Europe close: Stocks recover after ECB says initial Brexit storm weathered

European share markets pared back earlier losses to finish slightly higher on Thursday after the ECB said the initial Brexit storm had been weathered as it left interest rates unchanged.

The benchmark Stoxx600, France's CAC 40 and Germany's Dax were all slightly higher at the close. Comments from ECB President Mario Draghi that there could be some support for ailing European banks boosted the sector and the wider market.

A slump in airline stocks had provided a drag on European bourses earlier in the session as investors sold off amid fears of reduced demand after the attack in Nice last week and attempted coup in Turkey.

UK budget carrier easyJet fell after reporting a decline in sales while Germany's Lufthansa was also down after issuing a profit warning after the terror attacks hit bookings. Air France-KLM was also among sector casualties.

The ECB held the main interest rate at 0% and the bank said it expected rates to remain at record lows or fall to lower levels for an extended period of time. The bank deposit rate was also maintained at minus 0.4%.

The asset purchase programme (APP) was maintained at €80bn per month until the end of March 2017.

"Over the coming months when we have more information... we will be in a better position to reassess the underlying macroeconomic conditions," ECB President Mario Draghi added.

"If warranted, to achieve its objective, the governing council will act by using all the instruments available in its mandate," he said.

Draghi said by the next policy meeting on 8 September the ECB will be in a better position to re-assess the risks to the euro-area outlook as it will have gathered more information on the fallout of Brexit and have a new set of macroeconomic projections.

He said downside risks to economic recovery included the EU referendum outcome, geopolitical uncertainties, emerging market weakness, balance sheet adjustments and slow progress of structural reforms.

Economists expect the central bank will wait until the September policy meeting to add stimulus.
"We think the most likely option for the ECB is to extend quantitative easing beyond March 2017, possibly by six to nine months," said Barclays.

"We do not rule out further deposit rate cuts either, although we think these are less likely."