The European Central Bank cut its bond purchases last week more sharply than expected, to €6.651 billion, further scaling back its intervention after its renewed foray into debt markets helped stabilise Italian and Spanish yields.

ECB president Jean-Claude Trichet highlighted the bank's discomfort with intervening in debt markets in comments he made to European parliamentarians yesterday just as the bond buying data was released.

"The fact that markets are dysfunctional is, in our opinion, the responsibility of governments," he said in Brussels. "They are issuing their own securities. They have the responsibility for the credibility of their own securities."

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

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

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

The central bank's latest purchases, which span the period August 18th-24th, sent the programme's total to €115.5 billion. The ECB said €1.327 billion in bonds held under the programme matured last week.

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 region's debt crisis.

Mr Trichet's comments came after Federal Reserve chairman Ben Bernanke stopped short last Friday of detailing further action to boost the US recovery and said the onus for boosting long-term growth prospects lay at the feet of the White House and the US Congress.

The ECB wants euro zone governments to do more to tackle the debt crisis and only revived the bond-buy plan because it was the sole European institution able to move fast enough to fend off a market attack that threatened to rip apart the region.

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

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

"Although the ECB's purchases seem to have been effective in stabilising Italian and Spanish bond yields over the past few weeks, the central bank's commitment to sterilising the purchases implies that the size of the programme will probably be too limited to have a sustained impact on the large bond markets of Spain and Italy," said ABN Amro economist Aline Schuiling.

"We think the real end game in terms of containing the crisis is fiscal rather than monetary. It lies in more significant steps towards fiscal union, which could involve increasing the size of the EFSF as a first move."

However, efforts to bolster the rescue fund's role - which would also enable the ECB to hand over its bond-buying task - are meeting resistance in national parliaments. Some 23 lawmakers from German Chancellor Angela Merkel's own coalition have said they would not back the reforms of the European Financial Stability Facility (EFSF) in a vote next month, German media reported at the weekend.

Reuters