August 29, 2011 / 1:45 PM / 8 years ago

ECB reduces govt bond buys more than expected

FRANKFURT, Aug 29 (Reuters) - The European Central Bank reduced its bond purchases last week to 6.651 billion euros, further scaling back its intervention after its initial foray into debt markets helped Italian and Spanish yields to ease.

A Reuters poll had forecast the ECB would spend 10 billion euros on the bond-buy programme last week.

The reduction in the purchases from 14.3 billion euros in the prior week followed a similar pattern to the ECB’s first intervention in the debt market last year, when it also scaled back its bond buys after making an impact in the first week.

The ECB reactivated its controversial bond-buying programme earlier this month after Italy and Spain came closer to succumbing to the debt crisis after a fierce market attack.

The central bank’s latest purchases, which span the period of August 18-24, sent the programme’s total to 115.5 billion euros. The ECB said 1.327 billion euros in bonds held under the programme matured.

The bank does not break down the purchases.

The ECB resumed its purchases following a 19-week pause in the programme, despite opposition from a four-man group on its policymaking Governing Council, led by Germans Jens Weidmann and Juergen Stark.

Critics of the purchases say they push the ECB into the fiscal policy arena, overstepping its mandate and threatening its independence.

A majority of the bank’s policymakers, however, felt obliged to act as action from euro zone governments failed to stem the spread of the bloc’s debt crisis.

The internal split over the purchases within the ECB has raised questions about its appetite to remain in markets.

The bank has said it will “actively implement” the programme although board member Juergen Stark has said it is a temporary measure designed to buy time for troubled members.

Purchases take 2-3 days to settle, meaning that when the ECB is buying, the weekly figures do not necessarily give the full picture.

The ECB and the 17 euro zone national central banks can buy government and corporate bonds from banks and other investors under the programme, but not directly from governments.

As usual, the ECB will take one-week deposits from commercial banks on Tuesday to neutralise the monetary impact of the purchases and the inflationary pressure they create.

While the ECB does not break down its purchase traders and analysts estimate it holds around 45 billion euros of Greek debt.

For Reuters ECB information page on bond purchases, see .

Writing by Paul Carrel

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