September 4, 2012 / 12:22 AM / in 5 years

ECB hopes cut Italy, Spain yields; U.S. stocks off

A cameraman stands in front of the DAX board at the Frankfurt stock exchange August 29, 2012.Remote/Lizza May David

NEW YORK (Reuters) - Spanish and Italian government bond yields fell on Tuesday after the head of the European Central Bank hinted at the scope of a bond-buying program but U.S. stocks slid as investors remained wary of data expected later in the day.

After a long holiday weekend, many U.S. investors were looking not only to an upcoming meeting of ECB policymakers but also to U.S. manufacturing data due later in the day.

The Dow Jones industrial average .DJI was down 28.65 points, or 0.22 percent, at 13,062.19. The Standard & Poor's 500 Index .SPX was down 2.26 points, or 0.16 percent, at 1,404.32. The Nasdaq Composite Index .IXIC was down 6.03 points, or 0.20 percent, at 3,060.93.

The Institute for Supply Management releases its August manufacturing index at 10 a.m. EDT (1400 GMT). Economists expect a reading of 50.0, versus 49.8 in July.

The Commerce Department releases July construction spending numbers also at 10. Economists forecast a rise of 0.4 percent, a repeat of the June increase.

But Spanish two-year yields dropped to 3.137 percent as investors welcomed comments from ECB head Mario Draghi, while their Italian counterparts fell to 2.431 percent.

The ECB is expected to unveil a new debt-purchasing scheme to tackle the region's debt crisis at a policy meeting on Thursday, when it may also cut interest rates as the 17-nation euro area heads towards a recession.

Draghi told European lawmakers on Monday that buying short-term sovereign debt did not breach any European Union rules, which investors took as a sign the bank would resume purchases of short-dated Spanish and Italian bonds.

"Markets are taking a bit of confidence from Draghi, who apparently indicated that purchases of up to three years maturity wouldn't be in contravention of EU policies on financing of sovereigns," said Brian Barry, a strategist at Investec.

Additional reporting by Richard Hubbard in London; Editing by James Dalgleish

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