ECB expands bank loan program

The euro traded higher against the U.S. dollar Thursday as the European Central Bank offered new emergency loans to banks to help them weather Europes debt crisis.

Early in the afternoon, the euro was up 0.51 per cent at $1.34 US.

But the ECB decided against an interest rate cut, despite mounting fears of another recession.

ECB president Jean-Claude Trichet, holding his last news conference before retiring at month's end, did not even hold out the possibility of a rate cut at its next meeting in November.

At the same time, the Bank of England raised its ceiling for buying bonds a move intended to keep interest rates low and stimulate the economy to275 billion($441 billion Cdn) from200 billion.

That was the biggest increase in its stimulus program since the financial crisis and was aimed at keeping the debt crisis from eroding business and consumer confidence and pushing Britain back into recession.

ECB may not cut until December

Many economists had predicted the ECB will also have to act in the coming months to head off a downturn, including a cut to its benchmark interest rate from 1.5 per cent.

But if the ECB keeps to its habit of signaling moves at least a month ahead of time, that would mean no cut before December at the earliest.

"The economic outlook remains subject to particularly high uncertainty and intensified downside risks," Trichet said, adding however that "at the same time interest rates remain low."

The ECB will offer an unlimited amount of 12-month and 13-month loans to banks to shield them from turbulence in borrowing markets.

Many European banks are exposed to losses on Greek debt.

That has made borrowing between banks, crucial for their daily functioning, increasingly difficult because of fears the money might not be repaid.

Trichet said the ECB would also buy up to40 billion ($56 billion Cdn) in covered bonds, a type of security used by banks to raise funding.

The ECB's presence will help free up that credit market and make borrowing easier for banks.