UK stocks : FTSE 100 drops 1.1 pct
Nominal GDP targeting would justify higher inflation rates while growth was below target.
Sterling rose after Carney showed little bias towards immediate looser monetary policy, wrongfooting many investors who had expected him to be more dovish.
European Central Bank President Mario Draghi's comments in his monthly press conference also hit stocks after he said that the outlook for European growth would remain weak for the early part of 2013.
"Draghi's comments in the press conference that economic forecast risks are to the downside will have been very significant," Jeremy Batstone-Carr, analyst at Charles Stanley, said.
"There's been a combination of a number of factors today serving to remind investors that stockmarkets, through their performance, have got very much ahead of operating reality for many firms."
One such firm hit by changing operating realities was Burberry Group, which was the worst-performing blue-chip stock, tumbling 4.6 percent.
Rival luxury goods companies also fell as traders cited a Chinese advertising ban on certain expensive gift items as hurting the sector, undermining the assumption that strong demand from rich emerging market consumers could help support sales.
However, mobile phone operator and market heavyweight Vodafone provided basic support to the market. It rose 0.9 percent, bolstering the FTSE 100 index by 3 points alone, after the group maintained its outlook for the year and analysts expected the firm to dodge earnings forecast cuts, despite weak
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