ECB sharply lowers its bond purchases

(FRANKFURT) - The European Central Bank said Monday it had sharply reduced purchases of government debt last week, a signal that some calm might have returned to a crucial financial market.

The ECB said it settled 603 million euros' (793 million dollars) worth of government bonds, down sharply from 2.677 billion one week earlier.

The latest amount represented the fewest purchases of sovereign debt under the ECB's controversial Securities Markets Programme since late October, when they virtually ceased for three weeks.

The prior amount was the highest level since the programme's first weeks amid a Greek crisis in May and represented central bank efforts to help buy time for the Irish government to resolve its own crisis.

The ECB has since warned governments that it does not intend to assume all of the risk that eurozone members could default on their debts.

The bank last week unveiled the biggest capital increase in its history to protect against potential losses.

Subscribed capital is to be nearly doubled to 10.76 billion euros through contributions from member central banks, which means the money will come essentially from eurozone governments.

The ECB does not identify whose bonds it buys but it is widely believed to be focusing on debt issued by Greece and Ireland -- which have been bailed out by the EU and International Monetary Fund -- and by Portugal, which has come under increasing pressure to follow suit.

Since the ECB programme was launched, the central bank has bought government bonds worth around 72.5 billion euros in total, it said Tuesday.

ECB President Jean-Claude Trichet has urged eurozone governments to "live up to their responsibilities" by getting their finances in order and by boosting the firepower and flexibility of a permanent debt resolution mechanism.