The European Central Bank will decide whether to buy Italian government bonds to try to stem the euro zone's debt crisis from widening in a crucial conference call on Sunday evening (one p.m. EDT), ECB sources said.

ECB President Jean-Claude Trichet wants the policy-setting Governing Council to take a final decision on buying Italian paper after Prime Minister Silvio Berlusconi announced new measures on Friday to speed up deficit reduction and hasten economic reforms, one source said.

Another source said the council would also discuss possible emergency liquidity measures to prevent money markets freezing.

"Trichet wants the governing council to make a final decision on purchases of Italian bonds. If the governing council agrees, the Eurosystem would start on Monday," the ECB source said, speaking on condition of anonymity.

The Eurosystem comprises the ECB and national central banks of the 17 countries that share the euro single currency. It was not clear whether the ECB would issue any statement after the meeting, the source added.

Twin debt crises in Europe and the United States are causing global market turmoil and stoking fears of the rich world sliding back into recession.

Another source said the ECB meeting had been put back into the evening to see what measures U.S. authorities were prepared to take to calm markets after credit ratings agency Standard & Poor's downgraded Washington's AAA rating to AA+ on Friday.

"The important part of the picture now is the U.S.," the second source said.

G7 TO CONFER

Finance ministers and central bankers of the Group of Seven major industrialized nations are to hold a teleconference late on Sunday (European time) to discuss a response to the crisis after senior officials conferred by telephone late on Saturday.

"I don't think that central banks can do very much in case of new trouble. What is in the discussion (in the ECB) is to calm money markets with fresh liquidity if necessary," the ECB source said.

The second source said: "What we can start doing tomorrow is buying bonds or put additional money in the market."

The ECB reactivated its controversial sovereign bond-buying program last Thursday but has so far only bought small quantities of Irish and Portuguese bonds, seeking more front-loaded austerity measures from Italy.

Italian and Spanish 10-year bond yields spiked to 14-year highs when investors saw the central bank was not buying their paper.

Under pressure from his EU peers and the central bank, Italy's Berlusconi announced late on Friday plans to bring forward balancing the budget by one year to 2013, enshrine a balanced budget rule in the constitution and push through welfare and labor market reforms after talks with trade unions and employers.

The ECB remains divided over whether to buy bonds at all, with four German, Dutch and Luxembourg members of the 23-member council opposed, ECB sources said. Even some of those in favor say Italy should do more to front-load its reforms.

After a week that saw $2.5 trillion wiped off global stock markets, political leaders are under pressure to reassure investors that Western governments have both the will and ability to reduce their huge and growing public debt loads.

Euro zone leaders failed to convince investors with a July 21 summit agreement on a second bailout for Greece and new measures to prevent contagion to other weak economies.

That was partly because the complex deal requires parliamentary approval and voluntary participation by banks and insurers, and key decisions do not take effect until late September at the earliest.

That has raised pressure on the ECB to act to calm bond markets until the euro zone's 440-billion-euro rescue fund is empowered to intervene on secondary bond markets and give countries in difficulty precautionary credit lines.

It has also prompted widespread calls from economists and market analysts for the euro zone to at least double the size of the European Financial Stability Facility -- a move that EU paymaster Germany and its close ally France has rejected as unnecessary.

The German magazine Der Spiegel said doubts were growing in the German government that Italy could be rescued by the EFSF, even if it were tripled in size. Italy's public debt is about 1.8 trillion euros or 120 percent of national output.

(additional reporting by Paul Carrel; writing by Paul Taylor, editing by Angus MacSwan)

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