By Christopher Whittall 

Eurozone government bonds fell after the European Central Bank announced that it would reduce the size of its monthly bond purchases next year but keep its purchase program running until at least the end of 2017

Most investors had expected the ECB to extend its bond-buying for at least six months until September 2017 and keep the pace of its monthly purchases steady at EUR80 billion. Instead, the ECB said it would cut the monthly level from April onward to EUR60 billion.

That caused the euro to spike against the dollar and stocks to briefly sell off. The euro soon fell again. The Stoxx Europe 600 was recently up 0.9%.

But the most notable reaction came in government bonds, with investors sending prices down and yields up.

The yield on the 10-year German government bond was up 0.08 percentage point on the day recently at 0.427%, according to Tradeweb. Riskier debt from Southern European countries was hit hardest, with Spanish and Italian benchmark yields rising more than 0.1 percentage point to 1.553% and 2.032% respectively.

"You could argue this is a form of tapering, even though they are buying for longer," said Charlie Diebel, head of rates at Aviva Investors. "From a flow standpoint, you could argue their buying will be less significant."

Riskier European debt had rallied through much of this week despite the Italian government losing a referendum on constitutional reform that caused Prime Minister Matteo Renzi to announce his resignation. Analysts said those gains showed that investors were expecting more stimulus from the ECB, though bonds were slightly weaker Thursday morning ahead of the ECB decision.

Investors will now be parsing ECB President Mario Draghi's remarks from his press conference. Among other things, analysts are looking for clues on how the ECB will tweak the rules governing its asset purchases to address concerns that it may run out of bonds to buy.

Tom Fairless contributed to this article.

Write to Christopher Whittall at christopher.whittall@wsj.com

(END) Dow Jones Newswires

December 08, 2016 09:15 ET (14:15 GMT)