European Union finance ministers meet on Tuesday to discuss the EU economy with markets expected to react nervously to Monday's decision by euro zone ministers to take no new steps to quell the debt crisis.

After a five-hour meeting, the 16 euro zone ministers said they would be taking no new measures to tackle the contagion, saying the existing emergency fund was sufficiently big and that the proposal for euro-zone bonds had not even been broached.

We don't have any new decision to announce to you, Jean-Claude Juncker, the chairman of the Eurogroup, told reporters.

Ministers had focused their discussions on Spain and Portugal and spoke to the managing director of the International Monetary Fund, Dominique Strauss-Kahn, on the general economic situation in Europe.

Talks on Tuesday will be among all 27 EU finance ministers, with the debt crisis again expected to play a part in discussions, but other issues, such as the EU budget, closer economic coordination and Value Added Tax, on the agenda.

Financial markets remain on edge about the risk of the debt crisis spreading from Greece and Ireland, which are already receiving EU bailouts, to Portugal and possibly Spain.

There had been widespread expectation in financial markets in the past week that the euro zone might decide to take more radical steps to combat the crisis, possibly including an enlargement of the 750 billion euro European Financial Stability Facility, or the European Central Bank buying sovereign debt.

But German Chancellor Angela Merkel came out strongly against a bigger EFSF or the idea of issuing euro zone bonds on Monday, and other EU officials also dismissed the proposals.

I see no need at this time to increase the fund, Merkel told a news conference in Berlin. Only a very small percentage of it has been used.

She was supported by Dutch Finance Minister Jan Kees de Jager, who said it was premature to discuss what would happen if the fund, set up in May after Greece received a 110 billion euro bailout, ran out of money.

YIELD PRESSURE

Financial markets pushed the yields on the bonds of troubled euro zone countries to near record highs on Monday, and that degree of uncertainty is expected to persist on Tuesday, with no clear further steps by the EU to contain the problem.

The latest comments suggest (euro zone finance ministers) are far away from a compromise so we have to wait for the EU summit next week to get a flavor, said Nick Stamenkovic, an interest rate strategist at RIA Capital Markets.

EU leaders hold an end-of-year summit on December 16-17.

Before Monday's meeting, Strauss-Kahn had urged the ministers to increase the size of a 750 billion euro ($1 trillion) bailout mechanism for debt-stricken states and suggested the European Central Bank step up purchases of government bonds, an IMF report obtained by Reuters showed.

Olli Rehn, the European commissioner for monetary affairs, said Strauss-Kahn and the euro zone ministers had held good talks on the broad economic outlook in Europe and had largely shared the same view of the future.

As regards the economic assessment of the IMF, we probably agree on the economic outlook, he said. Recovery is taking hold and it is progressing but at the same time it is essential that we contain the financial bushfires so that they will not turn into a Europe-wide forest fire.

The main thing, he said, was for Portugal and Spain to get their budgets in check and stave off the threat of contagion.

We commended Spain for its substantive reform program with actions on all fronts, fiscal, structural, financial, he said. As regards Portugal, we welcome the recently passed ambitious budget for 2011 and we expect that this step will be followed by the substantiation of consolidation measures to reach 4.6 percent fiscal deficit target for next year.

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