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A trader looks at computer screens at Madrid's bourse August 2, 2012.

SUSANA VERA/REUTERS

North American stocks were down sharply in midday trading on Thursday, reflecting disappointment after the European Central Bank failed to signal that it was ready to buy government bonds – sending Spanish and Italian bond yields soaring.

At noon, the Dow Jones industrial average was down 136 points or 1.1 per cent, to 12,835. The broader S&P 500 was down 15 points or 1.1 per cent, to 1,360. In Canada, the S&P/TSX composite index was down 77 points or 0.7 per cent, to 11,542.

The moves follow the much-anticipated monetary policy statement from the ECB. Last week, the central bank's president appeared to signal that it was gearing up to buy government bonds to drive down borrowing costs in countries like Spain and Italy. However, it failed to take any specific action and said that the ECB could not replace government actions.

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The statement sent the yield on Spain's 10-year government bond up 42 basis points, to 7.07 per cent. Similarly, the yield on Italy's 10-year government bond rose 39 points, to 6.3 per cent. There are 100 basis points in a percentage point.

European stocks fell. Germany's DAX index fell 2.2 per cent and the U.K.'s FTSE 100 fell 0.9 per cent.

Within the S&P 500, the gains were widespread, hitting all 10 subindexes. However, economically-sensitive areas took the biggest hits: Energy stocks fell 1.8 per cent, materials fell 1.6 per cent and financials fell 1.5 per cent.

Within Canada's benchmark index, energy stocks fell 1.5 per cent, while materials and financials fell 0.6 per cent each.

Among commodities, crude oil fell to $87.81 (U.S.) a barrel, down $1.10. Gold fell to $1,592 an ounce, down $7.50 and marking its fourth straight decline.

In economic news, U.S. weekly initial jobless claims rose to 365,000, up 8,000 from the previous week, but slightly better than expectations for a bigger increase to 370,000.

U.S. factory orders fell 0.5 per cent in June, dashing expectations for a gain of 0.5 per cent.

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