None of the parties in the case, which include state train operator Renfe, state railway firm Adif and two insurance companies, had asked for Garzon to be jailed pending trial, and he was not seen as a flight risk, the court statement said.
At 8:41 p.m. on Wednesday the eight-carriage, high-speed train slammed into a concrete wall, crumpled, and some of the cars caught fire. The impact was so strong that one of the carriages was thrown several meters high over an embankment.
The death toll from Spain's worst train disaster in decades rose to 79 after one injured person - a woman from the United States - died on Sunday.
Seventy people remain hospitalized with injuries from the crash, 22 are in critical condition.
Garzon has worked for Renfe for 30 years, 10 as a driver. His father also worked on the rails and he grew up in Renfe-owned housing in the northwestern town of Monforte de Lemos and went to school with other train-workers' children.
After the accident he was hospitalized with a head injury. On Saturday he was released from the hospital but remained in police custody until he was taken to the hearing at Santiago de Compostela's main courthouse.
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Neither lawyers nor members of Garzon's family could be reached for comment.
Alaez has been assigned to investigate the case and will also look at whether the train, the tracks or the security system that slows down the trains were at fault.
Up to the driver
The Alvia train involved in the accident, one of three types of high-speed train services that run in Spain, received a full maintenance check on the morning of the journey, the head of Renfe said, and security systems were in good shape.
"As far as we know, the train was in perfect condition when it set off on its journey," Renfe President Julio Gomez-Pomar told newspaper ABC.
The Alvia trains run both on traditional tracks, where drivers must heed warning systems to reduce speed, and on high-speed tracks where a more sophisticated security system will automatically slow down trains that are going too fast.
At the section of the track where the accident happened, it was up to the driver to respond to prompts to slow down.
Gomez-Pomar rejected criticism that the safety system was insufficient, saying the debate "does not make much sense".
The city of Santiago was meant to be celebrating the yearly festival of St. James on July 25, with thousands of Christian pilgrims arriving after walking the famous Camino de Santiago ancient pilgrimage trail.
A week of concerts and other cultural events were cancelled after the train crash on the eve of the festival. On Sunday, black ribbons of mourning hung on the empty stages that had been set up.
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Pilgrims, many of them fresh off the trail and carrying backpacks, crammed into a standing-room-only Mass in Santiago's centuries-old cathedral where they were asked to remember the victims of the accident.
At the cathedral gates, along with flowers and candles commemorating the dead, some people left walking sticks from their journeys and others placed shells, the symbol of St. James and badge of honor for the pilgrims who complete the journey.
Prime Minister Mariano Rajoy, who visited the crash site after the tragedy, is due to return on Monday to Santiago, the city where he was born, for an official funeral ceremony for the victims.
Dolores Mato, 57, a shopkeeper who works close to the ancient cathedral, expressed sympathy and grief for the victims and their families, but also for Garzon, who she said had been "crucified" in the media.