(Updates with comment from economist in fifth paragraph)
Dec. 12 (Bloomberg) -- The European Central Bank settled fewer government bond purchases last week as leaders moved toward a fiscal deal aimed at ending the sovereign debt crisis.
The Frankfurt-based ECB said it settled 635 million euros ($841 million) of bond purchases in the week through Dec. 9, down from 3.7 billion euros the previous week. The central bank will take seven-day term deposits tomorrow to absorb the 207.5 billion euros of liquidity created since its bond program started on May 10 last year, a practice it employs to ensure the purchases don’t fuel inflation.
European leaders’ latest attempt to draw a line under their debt woes ended on Dec. 9 in a fiscal accord that will bring tighter deficit rules, with many details still to be ironed out. Markets signaled investors are disappointed with the outcome of the Brussels talks. Yields on 10-year bonds sold by Italy climbed above 6.6 percent after falling late last week.
ECB officials have resisted calls from investors and governments to backstop the currency bloc and combat the turmoil by boosting bond purchases. The ECB says it’s up to governments to solve the crisis, and asking the central bank to rescue states would damage its independence and credibility.
“Without any change in the ECB’s stance, the situation is likely to deteriorate further,” said Christian Schulz, an economist at Berenberg Bank in London. “Next week, the ECB is likely to report higher settlement amounts again, as it tries to manage the yields rather ineffectively.”
--With assistance from John Glover in London and Esteban Duarte in Madrid. Editors: Simone Meier, Jeffrey Donovan
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