THE EUROPEAN Central Bank (ECB) increased its bond purchases last week as investors remained concerned about governments’ ability to push down budget deficits across the 16-member euro region.

The Frankfurt-based ECB said it completed €1.12 billion of purchases after settling €603 million the previous week.

It began taking seven-day term deposits yesterday to neutralise €73.5 billion of liquidity created by bond purchases since the programme started on May 10th.

ECB president Jean-Claude Trichet has said governments must step up efforts to stem contagion and restore confidence and described the bond programme as “temporary”.

The bank said on December 2nd that it would extend emergency liquidity measures for banks after Ireland’s aid package failed to convince investors about the ability of governments to reduce budget deficits and prevent a break-up of the euro region.

The European Central Bank only publishes the amount of bond purchases that settle each week and does not disclose details.

The so-called securities markets programme aims to smooth the functioning of some bond markets to improve monetary-policy transmission.

ECB council member Ewald Nowotny from Austria said on December 10th that the bank’s unconventional measures “can’t become normality”.

His Luxembourg colleague Yves Mersch said the same day that monetary policy “cannot be overburdened”, and “we cannot blur the line between monetary and fiscal policy”.

Meanwhile, US treasuries fell yesterday after the sale of $35 billion in five-year notes was met with lower-than-average demand. – (Bloomberg)