Spanish and Italian banks reduced their government debt holdings in December, European Central Bank data showed today.

Spanish banks cut €4.3 billion from their government bond holdings after a €4.4 billion increase in November.

Their total sovereign holdings, adjusted by market value, fell to €256.5 billion.

Italian banks shed a net €13.5 billion of government bonds, with their total value falling to €356.7 billion.

Greek banks also reduced their government debt holdings, by €4.3 billion to €20.1 billion, while Portuguese banks cut their government debt exposure by €2 billion, the data showed.

The ECB data do not break down which countries' debt banks hold, but the figures give a good picture of how much of the €1 trillion the ECB has pumped into the market in twin 3-year liquidity operations is finding its way into the government bond market.

Meanwhile, consumers and firms' deposits in banks in troubled euro zone member states rose in December, the ECB said today. This indicated that fears of bank collapses or even a euro zone exit are receding further.

The ECB managed to calm financial markets by announcing a new government bond purchase plan in September, which has since brought down sovereign bond spreads for countries such as Italy and Spain.

Greek bank deposits rose by €6.4 billion to €167.8 billion. They have been relatively stable since June elections eased fears the country might drop out of the currency bloc, but are still almost one third below their December 2009 peak.

Private-sector deposits at Italian banks rose by 3.7% to €1.497 trillion in December after a slight rise in November and hit a new record high.

Deposits in other countries at the sharp end of the euro zone crisis were little changed. In Ireland they decreased 1% to €197 billion and were down in Portugal by 1.4% to €210.4 billion. Spanish banks recorded a 0.2% increase to €1.52 trillion at the end of December.

Monthly fluctuations in the figures are common, though sharp consecutive drops in countries with stable banking systems are unusual. The data, which are for all currencies combined, are not seasonally adjusted and differ slightly from national central bank figures. They exclude deposits from central government and banks.