File picture: Alex Grimm

European stocks and the euro fell on Friday as markets, hungry for detail on any ECB plan to repel a debt attack on Spain and Italy, grew cautious after Germany's Bundesbank restated its doubts about buying bonds of troubled euro zone nations.

European Central Bank President Mario Draghi's promise on Thursday to do whatever it takes within the bank's mandate to defend the single currency at first drove demand for riskier assets and gave some respite to Spain's battered treasury.

But the gains reversed by mid morning on Friday, particularly after the Bundesbank said it viewed “in a critical fashion” the dormant Securities Market Programme (SMP) under which the ECB had bought bonds issued by weaker euro zone governments on the secondary market.

Draghi's comments had prompted speculation that the ECB might resume its bond-buying programme, which German officials have much criticised.

After surging nearly 2.5 percent in the previous session, the FTSEurofirst 300 index of leading European shares had given up the early gains on Friday to trade down 0.1 percent by 11:09 SA time, although world stocks were up 0.3 percent.

Asian indexes had posted solid gains overnight.

Even before the comments from the German central bank, the lack of detail in Draghi's speech had made many investors cautious before an ECB policy meeting next week - and one of the Federal Reserve, which some hope will produce a new indications of US plans for more stimulus.

“I'm still a seller into the rally. He's (Draghi) got to do it within the framework of the European Union, and it hasn't worked so far,” said Bastion Capital's head of equities, Adrian Slack.

The euro was down 0.2 percent at $1.2255.

“I can't imagine Draghi would have made his comments without some sort of nod that temporary measures could be made, but this does not add up to solving the euro zone's problems, so I think the peak has already been seen,” Neil Mellor, currency strategist at Bank of New York Mellon, said before the Bundesbank's comments.

Spanish 10-year debt yields continued to feel the benefit of the Draghi speech, however, staying beneath the 7 percent yield that is considered unaffordable in the longer term, albeit off the lows, at around 6.95 percent.

“They (the ECB) obviously want to support the market but they run the risk of causing massive disappointment if they don't follow through with something,” said Charles Diebel, head of rates strategy at Lloyds Bank.

“Spanish yields can go down about 100 basis points if we really think that something big is coming. But for now the jury is out. They probably won't rally that much more, maybe another 20-25 basis points but that should be about it.” - Reuters