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UPDATE 1-ECB has asset purchases available but other options easier -Mersch

Marc Jones and Ana Nicolaci da Costa
Friday, 15 Nov 2013 | 9:56 AM ET

* Mersch say asset purchases available but complicated

* Warns against FX volatility

* Says ECB has more instruments to use

LONDON, Nov 15 (Reuters) - The European Central Bank has the option to buy assets outright if needed but because there is no joint euro zone bond to buy, other instruments are easier to use, Executive Board member Yves Mersch said on Friday.

The ECB cut its main interest rate to a record low last week, alarmed by a sharp drop in inflation, and calls have grown for the institution to follow other central banks which have spent billions on asset purchases to get their economies going.

ECB economics chief Peter Praet became the first of its top policymakers to openly talk about full blown asset buying this week, but speaking at an event in London his colleague Mersch underscored the difficulties that would be involved.

"In our mandate it says we can do asset purchases," Mersch said. "But Europe is a little bit different in so far that we do not have a single sovereign signature... So it is not surprising that we chose other instruments."

Unlike the Federal Reserve which can buy U.S. Treasuries the ECB would have to come up with a basket of government bonds or even company assets that would help the euro zone overall.

Mersch added that the ECB had the option to keep flooding the euro zone with cheap funding if necessary, though he also pointed out that banks were currently paying back the cash the ECB had lent them in the past of their own accord.

He said that was a sign of the improving health of the financial system but then also cautioned that the soon-to-be-18 country euro zone economy remained below par.

"We are not yet at the level of recovery of maybe others so we still reserve the chances of having to do other measures in future."

The Luxembourger is seen as part of northern euro zone bloc of ECB policymakers that could oppose controversial easing methods.

The bank surprised financial markets last week when it cut interest rates to a new record low of 0.25 just a week after a dive in euro zone inflation. Mario Draghi, its head, then went further saying rates could go lower still.

With borrowing costs already near zero and the bloc still overshadowed by sovereign and bank debt worries, the euro has remained stubbornly high despite some sizable lurches.

"When it comes to the exchange rate... excessive volatility is not in the interest of anyone," Mersch added echoing the usual stance of the Group of 7 developed nations.

On the ECB board, Mersch also has responsibility for setting up its new role overseeing the euro zone's biggest 130 banks. He strengthened calls for governments to have funds in place to recapitalise any strugglers the ECB uncovers.

His comments came as European ministers gathered in Brussels to outline plans to deal with troubled banks. Time is running out for the ministers to strike a deal by their self-imposed deadline of the end of the year.

"We strongly support the envisaged timeline for the single resolution mechanism (SRM) to become effective in January 2015," Mersch said.