European Central Bank To Boost Spain And Italy To Avoid Financial Disaster

The European Central Bank says it will "actively implement" a bond-purchase program that could boost Spanish and Italian bonds and drive down interest yields that threaten those countries with financial disaster.

Such purchases by the central bank could help Rome and Madrid fend off market trouble until a strengthened eurozone bailout fund is approved to help them.

Sunday's statement comes as officials worked to ward off more turmoil as financial markets prepared to reopen on Monday after the U.S. lost its triple-A bond rating from Standard & Poor's after market close Friday. Officials from the Group of 20 rich and developing countries also held talks aimed at minimizing market shocks. G-7 officials were reportedly to confer before markets open in Asia on Monday open as well.

The burst of activity on a Sunday in August underscored how government debt levels in Europe and the U.S. have unsettled financial markets - and sharpened fears that debt troubles could derail the global recovery from the 2007-2009 financial crisis.

The statement from the ECB, issued after a conference call among its officials, did not say which countries' bonds it would buy.

But the beneficiaries are expected to be Italy and Spain, market analysts say. Italy and Spain are trying to avoid the spiraling interest rates that forced Greece, Ireland and Portugal to seek bailout loans. Purchases could drive up bond prices, which move in the opposite directions from interest yields.

Last week, yields for both countries were above 6 percent, moving toward the levels that upended the three smaller countries. Italy in particular is regarded as too large for Europe's euro440 billion bailout fund to rescue, raising the possibility of a financial disaster that could devastate the eurozone economy.

Analysts at Royal Bank of Scotland said recent moves by Italy to strengthen its finances helped bring the ECB to its decision. The bank was reluctant to come to the rescue unless governments first close the holes in their finances.

The statement Sunday said it was "essential" for them to follow through on their commitments.

Italian Premier Silvio Berlusconi said last week that Italy would balance its budget in 2013, a year earlier than previously expected, and speed up other budget measures.

"The ECB will start a large scale bond buying of Italian and Spanish sovereign bonds on Monday morning in our view as euro area governments have signed up to additional fiscal measures where needed," they said.

They said the purchases could run euro2.5 billion ($3.5 billion) a day and "will stop the collapse of the bond market in countries under stress."

Italy has debt equivalent to 120 percent of annual economic output, the second highest in the eurozone behind Greece, and weak prospects for economic growth that would help pay it down.

Sunday's meeting comes just hours before the opening of financial markets in Asia, after Friday's downgrade of the U.S. credit rating from AAA to AA plus by ratings agency Standard & Poor's has led to fears of more stock market plunges.

Last week already saw markets around the world deep in the red amid fears the global economy may be weakening and the uncertainty created by Europe's sovereign debt crisis.

In a sign of early fallout, Middle East markets tumbled Sunday on the first day of business after the downgrade.

Middle East markets, open Sunday through Thursday, were the first to react to the downgrade. Egypt's benchmark EGX30 index fell more than 4 percent, and other Gulf markets also were sharply lower.

Israel's Tel Aviv Stock Exchange delayed the start of the week's first session after pre-market trade showed the benchmark index dropping more than 6 percent because of concerns over the U.S. debt rating cut. Exchange spokeswoman Idit Yaaron said the start was pushed back by 45 minutes "so market players will have time to react logically and not under pressure."

Israel's benchmark TA-25 index plunged 7 percent to close at 1,074 points.

U.S. markets and others reopen Monday but have had rough patches recently. The Dow Jones industrial average dropped 512 points Thursday, its worst performance since the financial crisis of 2008, and regained only a fraction of that drop Friday.

Many economists see the world's big central banks as the last line of defense at this moment in the crisis, after policymakers in Europe and the U.S. have failed to agree on the kind of shock-and-awe moves that many investors demand.

Investors have also been calling on the U.S. Federal Reserve to start pumping money into the American economy again to help underpin the slowing economic recovery.

The Associated Press contributed to this article.