ECB takes in almost 1.4 bln euros to offset debt purchases

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The European Central Bank took in one-week deposits worth nearly 1.4 billion euros (1.9 billion dollars) from commerical banks on Tuesday, it said in a statement.

The operation offset a sharp jump in purchases of bonds by the ECB last week.

The ECB made the purchases under its crisis scheme of buying government debt from banks as public debt issued by Ireland and Portugal came under renewed pressure, signalling falling confidence in the credit quality of Irish and Poirtguese bonds.

Moody's Investors Service said Tuesday that it might downgrade Ireland's sovereign debt rating owing to the cost of rescuing Irish banks.

The ECB collects one-week deposits from banks equal to the amount it holds in government debt to avoid fuelling inflation, which rose in September to 1.8 percent, the highest 12-month figure for nearly two years.

The amount bought last week, 1.384 billion euros, was 10 times greater than the previous week and the highest figure since early July, amid renewed market pressure on debt issued by Ireland and Portugal.

The latest operations brought the total amount of purchases to 63.5 billion euros, the ECB said.

The ECB has pursued the controversial programme of public debt purchases to underpin a key market for eurozone sovereign financing, and UniCredit analysts said the central bank "has likely bought 2.2 billion in Irish bonds (around 80 percent of its total purchases) since early August."

When the programme began in May, weekly purchases hit a high of 16.5 billion euros, before falling off to almost nothing in early August.

© 2010 AFP

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