The European Central Bank disclosed increased purchases of euro zone government bonds on Monday as Spain assured investors it would reform its rigid labor market even if employers and trade unions cannot agree.

The ECB began buying up mostly Greek, Portuguese and Spanish bonds on May 3 in a disputed action to help stabilize the euro zone and support an emergency $1 trillion package agreed by the European Union and the International Monetary Fund.

The central bank said in a statement it had settled 35 billion euros in bond purchases by May 28, up from 26.5 billion a week earlier. It did not detail the nationality of the debt but ECB officials have said it is mostly from south European countries hardest hit by financial market turmoil.

ECB governing council member Axel Weber, president of Germany's powerful Bundesbank, urged a tight cap on the bond buying program and said the extraordinary steps taken to ease the euro zone debt crisis posed a risk to price stability.

The purchases of government bonds in the secondary market should not overshoot a tightly-capped limit, Weber said in a speech prepared for delivery in Mainz, Germany. He did not suggest a figure.

Spain, the fourth largest euro zone economy, saw its credit rating downgraded a notch by Fitch Ratings agency from the maximum AAA to AA+ late on Friday after a 15 billion euro austerity program squeaked through parliament by a single vote.

Market reaction to the downgrade was limited, partly because U.S. and British markets were closed for holidays on Monday.

The euro recouped losses incurred after the Spanish debt downgrade to trade at around $1.23. The 10-year Spanish-German bond spread widened only slightly but Spanish stocks fell 0.7 percent while the index of leading European shares gained 0.4 percent.

Labor REFORM WHATEVER

Spanish Economy Minister Elena Salgado told a conference in Madrid that the government aimed to pass a much anticipated labor market reform by the end of June with or without consensus with the unions and business representatives.

The minority Socialist administration extended the deadline for an agreement by one week from Monday but officials have said the social partners are still far apart.

The left-leaning daily El Pais said the government planned to allow companies to make greater use of cheap work contracts for a broader range of employees, reducing redundancy payments and making it easier to fire workers.

Trade unions have threatened to strike if the government imposes the reform by royal decree, a move that would set the ruling Socialists on a collision course with their traditional allies in organized labor.

In a sign of continued international concern about the impact of Europe's problems, China warned that Europe's struggle to contain ballooning debt posed a risk to global economic growth, raising the specter of a double-dip recession.

Premier Wen Jiabao, addressing business leaders during an official visit to Japan, issued his warnings a day after France admitted it will struggle to keep its top credit rating.

Some countries have experienced sovereign debt crises, for example Greece. Is this kind of phenomenon over? Now it seems that it's not so simple, Wen said. The sovereign debt crisis in some European countries may drag down Europe's economic recovery.

He added it was too early to wind down stimulus deployed during the 2007-2009 financial crisis.

Governments around the world ran up record debts during the $5 trillion effort to pull the economy out of its deepest slump since the Great Depression and now face a tough balancing act: how to reduce debt without choking off growth.

ECB governing council member Mario Draghi warned that austerity programs by European governments could snuff out a fragile recovery unless they were coordinated internationally.

These are difficult courses of action and unless coordinated at the international level they risk extinguishing the hesitant economic recovery, he said.

As if on cue, economic sentiment in the euro zone fell in May, defying analysts expectations of a slight improvement, in part due to the wave of austerity announcements.

However, ECB President Jean-Claude Trichet said the economy may expand more than expected in the second quarter.

The fact that not just the fiscally weakest southern European countries, but also nations at the euro zone's core are under pressure to cut debt and deficits amassed during the financial crisis, is adding to concerns.

On Sunday, France said keeping its AAA credit rating would be a stretch without some tough action on its deficit, while Germany indicated it might resort to raising taxes to bring its shortfall closer to the EU's limit of 3 percent of gross domestic product.

France, the euro zone's second-largest economy, expects the budget deficit to hit 8 percent of GDP this year, but aims to bring it down to the EU limit by 2013. Germany, Europe's biggest economy, expects its deficit to exceed 5 percent of GDP in 2010.

(Additional reporting by Sarah Morris in Madrid, Martin Santa and Sakari Suoninen in Vienna, Marc Jones in Frankfurt; Writing by Paul Taylor; Editing by Ron Askew)

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