Meanwhile, business sentiment and consumer confidence in the euro zone fell to their lowest levels in almost three years.
"Most countries saw very weak or declining sentiment in July – not just the struggling southern periphery countries but also the core northern euro-zone countries," said Howard Archer of IHS Global Insight. "Indeed, there was a marked drop in sentiment in Germany, indicating that it is increasingly being affected by the problems elsewhere in the euro zone."
Standard & Poor's, the rating agency, cut its growth forecasts for the euro zone and said there was now a 40% risk of a double-dip recession.
Draghi's comments at an investment conference in London last week prompted speculation that the ECB might plunge back into the financial markets and resume buying the bonds of countries facing high borrowing costs on their debt. Some analysts believe that Draghi might be prepared to face down the German government and start buying bonds directly from euro-zone governments. A cut in the ECB's key interest rate will also be discussed at Thursday's meeting.
"[Draghi] has upped the stakes massively," said Peter Allwright, head of absolute return on rates and currency at RWC Partners. "He has gone all in, but the market will be calling his bluff."
The nature and timing of any action is unclear and euro-zone officials have said September is shaping up to be a "make-or-break" month in the search for a resolution to the three-year-old debt crisis
Spanish 10-year yields dropped 13 basis points to 6.64%, having fallen from levels around 7.5% seen before Draghi's comments. Italian 10-year yields were seven basis points higher at 5.88%.
"What the ECB is trying to do is to stabilize the market to drive yields down," said David Keeble, global head of rates strategy at Credit Agricole.
"They are likely to come out and say that they are doing SMP (bond purchases) not instantly but that they're more inclined to do it if the market remains volatile. If we can get the stability back then we'll start to grind lower in yields."
On the currency markets, the euro lost ground against the U.S. dollar following its recent sharp gains and closed at $1.2244 in Europe. The FTSE 100 closed up 66 points at 5934.
Intellpuke: You can read this article by Guardian Economics Editor Larry Elliott in context here: www.guardian.co.uk/business/2012/jul/30/eurozone-crisis-strong-rally-falters-euro