The European Central Bank has cut interest rates by a quarter percentage point under new head Mario Draghi to boost weakening growth in a eurozone struggling with a crisis over too much government debt.

The move, which comes earlier than expected by many economists, takes the bank's benchmark rate to 1.25 per cent.

European growth is expected to slow to near or below zero in the last three months of the year.

Uncertainty from Europe's debt crisis is a factor. Business and consumers are reluctant to spend and investors because they fear more financial turmoil if Greece defaults on its debts.

However, the euro fell sharply after Draghi signalled that the ECB's bond purchases, which have been keeping down borrowing rates for financially weak countries like Italy, are temporary and limited.

Markets had hoped that Draghi would indicate the bank was willing to intervene more aggressively to prop up Spain and Italy and keep Greece's crisis from spreading to them.

But Draghi said it was up to governments to fix their finances. "It is pointless to think sovereign bond rates could be brought down for an extended period of time by outside interventions."