Updated with comments from ECB President Mario Draghi

NEW YORK ( TheStreet) -- The European Central Bank trimmed its key interest rate by a quarter percentage point to 1%, in line with the forecasts of most economists, but President Mario Draghi dimmed market hopes when he said there is no plan for large-scale government bond purchases.

Markets had hoped for a more aggressive ECB approach to the two-year debt crisis in Europe.

European leaders began meeting Thursday to draw up a plan to resolve the debt crisis. Draghi previously hinted at action from the ECB if European leaders agreed to tighter budget controls.

But Thursday he said he was "surprised by the implicit meaning" given to comments he made last week.

"A new fiscal compact, comprising a fundamental restatement of the fiscal rules together with the fiscal commitments that euro area governments have made, is the most important precondition for restoring the normal functioning of financial markets," Draghi said Thursday.

The ECB president also said the eurozone economy could be headed for a mild recession.

-- Written by Joseph Woelfel

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