European shares back to earth after Draghi bombshell

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June 19 (Reuters) - European stock markets were flat on Wednesday after posting their best results in five months a day earlier thanks to a strong policy speech from European Central Bank chief Mario Draghi that flagged a potential return to bond-buying and lower interest rates.

Draghi's speech sank the euro and drove major euro zone bond yields back below zero, slashing effective market borrowing costs, giving a boost to companies worried by sagging growth and driving the pan-European STOXX 600 index .STOXX almost 2% higher.

It was flat compared to Tuesday's close by 0709 GMT, although interest rate sensitive banking stocks .SX7P outperformed with a 0.7% rise.

Clydesdale and Yorkshire Banking Group CYBGC.L bucked that trend to gain 2.8% after the British lender pledged to make an additional 50 million pounds ($62.75 million) in savings from its takeover of rival Virgin Money (LON: VM ). keeping markets afloat was news that China and the United States are rekindling trade talks ahead of a meeting next week between Presidents Donald Trump and Xi Jinping at the G-20 summit in Japan, sparking hopes that the tensions between the two sides would abate. speech has also further upped the stakes for a Federal Reserve policy meeting that will be Wednesday's main market event, already expected to point the way to interest rate cuts for the second half of this year.