Spain urges ECB to step up bond purchases

Madrid A Spanish minister called on the European Central Bank to do more to stem the sovereign debt crisis as the cost of insuring the country's bonds against default surged to a record.

"They should step up purchases of bonds," Jaime Garcia-Legaz, a deputy minister in Luis de Guindos' Economy Ministry, said on Friday in an interview.

His comments came as ECB officials split over the steps to tame the crisis amid growing expectations that Spain will be the next euro member to seek a European bailout. Spanish banks' borrowings from the ECB surged almost 50 per cent in March, data showed Friday, as they took almost a third of the longer-term lending offered to euro-region institutions.

Prime Minister Mariano Rajoy is struggling to convince investors he can get Spain's finances under control after last month refusing to meet deficit targets set by the European Commission and the previous government. While Rajoy said on April 12 Spain won't need a rescue, credit-default swaps rose 17 basis points to 498 yesterday, surpassing the all-time high closing price of 493, according to CMA.

The yield on Spain's 10-year bonds rose 16 basis points to 5.98 per cent, edging closer to the 7 per cent level that pushed Greece, Ireland and Portugal into rescues.

Garcia-Legaz's comments go beyond those of his prime minister, who has repeatedly praised the ECB's extraordinary liquidity measures. Budget Minister Cristobal Montoro referred Friday to the "importance of the role" of European institutions in fighting the crisis.

"If you're demanding ultra-restrictive fiscal policies from Spain and Italy then it makes sense to have monetary policy with stronger bond purchases," said Garcia-Legaz, a former secretary general of the Faes research institute that's linked to the ruling People's Party.

ECB officials are nevertheless struggling to present a united front over what to do next as investors dump Spanish bonds amid renewed concern about bad assets at the country's banks. While Executive Board member Benoit Coeure signalled on Wednesday the bank may start buying Spanish bonds, his Dutch colleague Klaas Knot said Friday that the ECB is "very far" from reactivating a policy that failed to stop a selloff in Spanish bonds in November.

"I hope we never have to use it again," he said in Amsterdam.