ECB extends support for banks

The European Central Bank took steps Thursday to contain the continent's debt crisis as president Jean-Claude Trichet announced it would extend measures to provide ready cash to banks through the first three months of 2011.

Those operations reduce anxiety in the financial system by offering banks all the short-term credit they want at the central bank's record low rates.

Trichet indicated that those measures could be extended even further if needed and that the central bank kept its mind open to increasing its bond buying program.

"We are constantly looking at the situation of the markets and at the acute tensions," he said.

The euro gained amid rumours that the bank might in fact be quietly buying bonds of financially troubled euro zone countries, such as Ireland and Portugal.

By 5 p.m. in North America, the euro was trading 0.4 per cent higher on the day at $1.3214 US.

Trichet's comments marked a change of course from last month's meeting, when he indicated Europe was doing well enough for the bank to gradually phase out its emergency liquidity measures.

As expected, the ECB kept its main interest rate unchanged at one per cent.

The bank, the European Union and the 16 governments that share the euro are struggling to contain a crisis caused by too much state debt in some countries.

They are trying to reassure bond investors that the countries will not default, in an effort to prevent those investors from demanding yields so high that those nations could no longer afford to borrow.

Highly indebted governments are slashing spending and raising taxes to cut their deficits, but that has raised fears that austerity will slow growth and make debt even harder to pay.