The euro gained versus the dollar and European stocks got a short-lived boost after a report that Mario Draghi, the European Central Bank chief, would propose unlimited bond buying at a meeting on Thursday.
The bond buying would be sterilized, i.e., the central bank would mop up the additional money supply created by its purchases, Bloomberg reported, citing anonymous central bank officials.
The program would focus only on government debt with maturities of up to three years, and the plan would refrain from capping borrowing costs for troubled euro zone countries, as recent reports have suggested.
The euro rose to a session high above 1.26 against the dollar after the news crossed the wires. An ECB spokesman declined to comment on the report.
Speculation has been rife that the ECB (learn more) will announce new measures to support countries, such as Spain and Italy, which have faced rising borrowing costs in recent months.
Draghi skipped the annual meeting of central bankers in Jackson Hole, Wyo., last week due to a heavy workload.
Even if the details of the proposal are true, there's no guarantee they will be approved at Thursday's meeting in Frankfurt. The Financial Times reported last week that ECB technocrats were preparing a number of options for the Governing Council to consider.
Spain's situation is looking particularly dire because of a flight of capital as businesses and consumers have pulled money from the banking system over fears Spain could face the same fate as Greece. (Read More:Spain's Capital Flight Now Worse Than Asian Financial Crisis.)
Pressure on the ECB to act has been rising from various political quarters. Earlier on Wednesday, the Organization for Economic Cooperation and Development said the ECB should support countries like Spain, which are carrying out "necessary adjustments."
But Germany's central bank has opposed further bond buying, with reports last week that the Bundesbank chief Jens Weidmann had threatened to resign from the ECB. Weidmann has said bond buying could become addictive like a drug for governments.
A prominent German economist, who supervised Weidmann's doctoral thesis voiced support for Weidmann's stance of opposing unlimited bond buying.
“The understanding when they started in 2010 was … well, we have to buy some bonds simply to keep the market floating, to keep them flexible, but meanwhile, it’s clear this is not the idea,” Manfred Neumann, professor of economics at the Institute for Economic Policy at the University of Bonn told CNBC on Tuesday.
A decision by the ECB is due at 1:45 p.m. Frankfurt time, followed by a press conference to be addressed by Draghi at 2:30 p.m.