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UPDATE 1-ECB's Weber-Bond buying carries risk, to be limited

FRANKFURT, May 10 (Reuters) - The European Central Bank's decision to buy government bonds carries a significant risk for price stability and must be limited to achieving their purpose, Governing Council member Axel Weber warned on Monday. Euro zone central banks started buying up government bonds on Monday as part of a $1 trillion bid to resolve the debt crisis gripping the region. "Buying government bonds entails considerable stability policy risks, and thus I regard this part of the ECB council's decision critically in this exceptional situation," he told the business daily Boersen-Zeitung. "It now depends decisively to keep these risks as low as possible.

Therefore these purchases are very limited: their only goal is to restore the efficient functioning of bond markets and the monetary policy transmission mechanism." "The liquidity which would be introduced, would again be sterilized," he added. A Bundesbank spokesman later said Weber was referring to the purpose of the purchases being limited rather than the scale. The ECB's decision to buy bonds is a reversal of its resistance to full-scale asset purchases as it fights to contain Greece's debt crisis. ECB President Jean-Claude Trichet gave no indication of how much central banks were prepared to spend on their unprecedented bond-buying program but said they were doing what was necessary. (Reporting by Marc Jones and Marlyn Gerlach; Editing by Ron Askew) Keywords: ECB/WEBER (marc.jones@thomsonreuters.com; +49 (0)69 7565 1219; reuters messaging: marc.jones.reuters.com@reuters.net) COPYRIGHT Copyright Thomson Reuters 2010. All rights reserved.

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