UPDATE 4-ECB keeps liquidity taps on, says bond buying ongoing

* Keeps liquidity operations unlimited

* No commitment to step up pace of government bond-buying

* Rates on hold at 1 percent, as expected

* Euro rises on reports ECB buying peripheral bonds

(New throughout with Trichet news conference)

By Sakari Suoninen and Josie Cox

FRANKFURT, Dec 2 (Reuters) - The European Central Bank said on Thursday it would keep giving banks unlimited liquidity well into next year as the euro zone debt crisis rages unabated, but it made no commitment to step up the pace of bond-buying.

The lack of a more aggressive policy response to the debt crisis disappointed investors but the euro EUR= nonetheless rose on reports the ECB was buying Portuguese and Irish debt.

President Jean-Claude Trichet said the ECB decided to conduct three month liquidity operations in January, February and March "with full allotment". Until recently it had been expected to phase out unlimited liquidity measures.

He made no firm pledge to ramp up buying of government bonds to support the likes of Portugal and Spain despite growing speculation that it could rush through new anti-crisis measures, including government bond buying on a much larger scale.

"It's a huge disappointment," said Klaus Baader at Societe Generale. "There's no quantum leap, that's for sure. There's not even a little hop."

The ECB started purchasing bonds through the SMP in May and has so far spent 67 billion euros ($88 billion), most of it during the first three weeks of the programme.

"The Securities Market Programme (SMP) is ongoing, I repeat ... ongoing," Trichet told a news conference after the ECB's monthly policy meeting left interest rates at 1.0 percent.

"I won't comment on the observations of market participants," he said, adding that he had never given a limit for the programme's size.

As Trichet spoke, the premium investors demand to buy Portuguese and Irish debt over German benchmarks fell with traders saying the ECB had been buying the two countries' bonds at a modestly higher rate than of late. [GVD/EUR]

GOVERNMENT RESPONSIBILITIES

Speculation was rife in the run-up to the meeting that the ECB could rush through new anti-crisis measures to respond to the debt crisis with some analysts talking of trillions being spent to support peripheral euro zone debt.

Instead, Trichet urged euro zone governments to act, saying their actions would be of "decisive importance".

The ECB was in permanent contact with governments, Trichet said, adding that it was "for them to demonstrate as clearly as possible that they are up to their responsibility".

EU leaders have responded to the debt crisis with 85 billion euros in aid for Ireland and plans for a permanent bailout facility.

But the response has failed to calm markets and some economists say the future of the euro is in doubt without more integrated fiscal policies within the bloc.

Some analysts also say the ECB may have to escalate its bond buying programme soon if the euro zone debt crisis threatens to push Portugal and Spain to seek bailouts, as Ireland and Greece already have.

"Mr Trichet left the door open to further purchases of government bonds," said Marie Diron at Ernst & Young.

"However, the ECB will likely decide on these as and when it sees fit rather than by planning a much more substantial bond purchase programme," she said.

Debate will have been heated in the policy meeting.

Governing Council member Axel Weber has made his distaste for the programme clear and called for it to be scrapped in October, saying it had failed to calm bond markets.

Trichet said there had been a consensus within the ECB to keep liquidity flowing and that an "overwhelming majority" were in favour of the bond-buying programme.

There was no mention of unanimity.

LIQUIDITY UNBOUND

The ECB's decision to keep its main refinancing rate on hold at 1.0 percent was widely expected. All 74 economists in a Reuters poll predicted that this month, and expect on average for them to be raised late next year. [ECB/INT]

And in a Reuters poll on Tuesday, 13 of 22 traders said they expected the ECB to continue offering unlimited amounts of cash to banks. [ID:nLDE6AT209] But Trichet's failure to promise a ramp-up in bond buying disappointed investors.

"One can only expect that the market will not find hoped-for reassurances or policy initiatives in today's comments," said Carl Weinberg at High Frequency Economics.

"Indeed, Mr. Trichet emphasized in his Q&A session that what the ECB is doing is not quantitative easing. He said it twice!"

Markets are already discounting an eventual rescue of Portugal. While that would be manageable, assistance for its neighbour Spain would sorely test EU resources and raise deeper questions about the integrity of the 12-year-old currency area.

The 16-country region's central bank also nudged up its growth forecast for 2010 on Thursday but left the midpoint prediction for 2011 unchanged. [ID:nWEA5644]

"Recent economic data are consistent with the positive underlying momentum of the recovery while uncertainty is elevated," Trichet said. (Additional reporting by Marc Jones and Paul Carrel in Frankfurt and Luke Baker in Brussels, editing by Mike Peacock)