EU extends lifeline to ease debt crisis

By late-afternoon London time, the euro was trading 0.2 percent higher on the day at $1.3164.

Additionally, the 10-year bonds of Ireland and Portugal suddenly rose.

For the Portuguese government, that is a big relief as it struggles to keep borrowing costs from climbing out of reach and having to follow Greece and Ireland in seeking a bailout from its partner governments in the euro and the International Monetary Fund.

“This gave the impression of increased activity on behalf of the ECB in those markets,’’ said Elwin de Groot, an economist at Rabobank International.

The bank, the European Union, and the 16 governments that share the euro are struggling to contain a crisis caused by too much state debt in some countries. They are trying to reassure bond investors that countries will not default and keep the interest rates on their debt loads from rising so high they can no longer afford to borrow.

Governments are slashing spending and raising taxes to cut their deficits, but that has raised fears that austerity will slow growth and make debt even harder to pay.

By offering more support for the economy, Trichet has clearly changed course from last month’s meeting, when he indicated that Europe was doing well enough for the bank to gradually phase out its emergency liquidity measures.

Last weekend’s crisis bailout of Ireland changed all that, however. Now, markets are worrying that Portugal and even much larger Spain might join Greece and Ireland in needing a bailout.

Markets widely expected that the bank would step up and do more, given the potential consequences in the peripheral countries of Greece, Ireland, Portugal, and Spain. The EU’s top monetary official, Olli Rehn, openly lobbied for the bank to take action.