UPDATED: European Central Bank says it will "actively" renew its bond-buying programme to avoid threats of default in Italy and Spain | Israeli and Gulf region sharemarkets plummet on US credit rating downgrade.
UPDATED: European Central Bank says it will "actively implement its securities market programme that buys euro-zone government bonds on the secondary market.
• European Central Bank may become lender of last resort
• Israel's sharemarket falls to 11-year low
The European Central Bank (ECB), which is under pressure to become more deeply involved in solving euro-zone debt problems, says it will "actively" renew euro-zone bond purchases but has stopped short of specifying any moves.
The ECB governing council has welcomed the moves by Italy and Spain to announce new measures to reduce government debt and reforms to bolster their economies.
The ECB says it considers the "decisive and swift implementation by both governments as essential in order to substantially enhance the competitiveness and flexibility of their economies, and to rapidly reduce public deficits.”
It also stresses the "decisive importance" of each government's declared intention "to fully honour their own individual sovereign signature as a key element in ensuring financial stability in the euro area as a whole.”
That means governments have pledged to honour their debts and not consider default as a way of resolving debt problems.
The ECB council's emergency meeting on Sunday night is the latest development in a financial storm that arises from the downgrade of US long-term credit ratings and Europe's unfolding debt crisis.
The ECB's move is the most dramatic – and controversial – escalation of their nearly two-year effort to avert intervention to prop up Italy and Spain.
It would turn the ECB into the euro-zone's lender of last resort and be a watershed in Europe's effort to fight the financial crisis.
Until now, northern European members have opposed such a move and have limited buying of bonds to Greece, Ireland and Portugal.
Friday's decision by Standard & Poor's to strip the US of its triple-A rating – an action taken after the close of US markets – strengthens the pro-buying faction, given worries about a new bout of contagion sweeping global markets.
So far, the ECB has purchased less than €80 billion of Greek, Irish and Portuguese such bonds. By contrast, Italy and Spain, another troubled economy, together issue roughly €600 billion of government bonds a year.
Sharemarkets plummet
Meanwhile, trading on Israel's Tel Aviv stock exchange was temporarily halted on Sunday after share prices fell 6% at the open on news of a US credit rating downgrade.
Trading continued under conditions that allow suspensions unless prices fall 12%. At the close, the blue chip TA-25 Index had tumbled 7%, the biggest decline since October 2000.
The index is near the so-called bear-market territory after retreating 19.9% from a record high on April 21.
In the Gulf region, share markets dropped between 3.7% in Dubai and 1.9% in Oman. Saudi Arabia managed a modest 0.1% gain after Saturday's 5.5% decline.
