* Trichet says euro credible, bond buys necessary * Draghi: bond buying will stop once markets functioning * Trichet says Q2 growth to be stronger than expected * Makuch: euro exchange rate good for exports

(Adds Makuch comment)

By Martin Santa and Marc Jones

VIENNA/FRANKFURT, May 31 (Reuters) - European Central Bank policymaker Axel Weber on Monday urged a tight cap on the bank's government bond buying programme, saying extraordinary steps taken to ease the debt crisis posed a risk to its main goal of price stability.

Despite figures showing a slump in economic sentiment as the crisis crimps activity in the real economy, ECB President Jean-Claude Trichet said euro zone GDP may expand more than expected in the second quarter though future growth was not assured.

The ECB abandoned a long-held resistance to buying government debt early this month, helping to calm bond markets and bring down borrowing costs for heavily-indebted Greece and other financially strained euro zone members.

Trichet defended the move as a necessary intervention while a third ECB policymaker, Bank of Italy Governor Mario Draghi, said the programme would end as soon as possible.

But Weber, who has already gone public with his concerns, urged a tight cap on buying.

Monetary policy has taken new paths in the wake of the crisis. I am critical of this because of the risks to policy stability, Weber said in a speech prepared for delivery in Mainz, Germany.

To minimise the risk to price stability, he said the bond buying had to be targeted precisely and tightly limited in scale, though he did not give a number.

The purchases of government bonds in the secondary market should not overshoot a tightly-capped limit, he said.

These operations should have the character of a bridge facility until the financing facilities of the EU and special purpose vehicles take over.

Fears about the finances of some euro zone countries, notably Greece, Portugal and Spain, have driven a 15 percent drop in the value of the euro since the start of the year.

ECB Governing Council member Jozef Makuch said in Vienna on Monday he was happy with the euro's current exchange rate against the dollar, saying it was very close to fundamentals and good for the euro zone's exports [ID:nDEP003316].

Trichet said euro zone governments need to make a quantum leap in improving budget oversight mechanisms to prevent recurrences of bad fiscal behaviour.

These are challenging times for Europe and for the ECB, Trichet told an Austrian central bank conference, warning the bond buying was time-bound and would not allow countries to sidestep the hard task of scaling back spending and mending public finances.

Trichet said the bond buying was not akin to printing money -- so-called 'quantitative easing'. Like Weber he said it was aimed purely at getting trading in the euro zone bonds in question back up and running.

Draghi said the buying would be discontinued as quickly as possible, as soon as the markets resumed trading the securities of the countries in question.

HIGHER GROWTH

The OECD upped its forecasts for the euro zone's economic growth last week and Trichet said the recovery now looked to be stronger than previously expected.

ECB money supply figures showed loans to euro zone households hit a record high although lending to firms fell to its lowest level in almost two years.

Within the euro area, some recent data suggest a phenomenon of a recovery in growth in the second quarter of 2010 that is slightly higher than expected, Trichet said.

However, future growth was not set in stone.

Euro zone economic sentiment fell sharply in May, reflecting concerns that a broadening of the debt crisis begun in Greece will stall bank lending and stop the recovery in its tracks.

Asked in an interview with French newspaper Le Monde whether the euro currency was in danger as a result of the current trouble, Trichet jumped to its defence.

The euro is a very credible currency which keeps its value... The euro's capacity to maintain its value is absolutely essential for the confidence of investors both inside and outside the euro area, he said.

Draghi warned that austerity programmes across the region could snuff out the fragile recovery unless coordinated internationally.

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