Nov. 5 (Bloomberg) -- Europe’s biggest central banks signaled they will start to wind up emergency policies introduced to fight the financial crisis as the global economy recovers.

European Central Bank President Jean-Claude Trichet said today the ECB plans to phase out its unlimited liquidity operations next year, and Governor Mervyn King’s Bank of England said U.K. officials will slow the pace of bond purchases.

Central banks around the world are starting to rein back some of the measures introduced to stave off a second Great Depression. Australia and Norway have already raised interest rates and the Federal Reserve yesterday outlined the circumstances in which it would be prepared to tighten policy.

“There is a common theme,” said Luigi Speranza, an economist at BNP Paribas SA in London. “No one expected this to last forever, but the ECB and the Bank of England will proceed very gradually. They want to avoid jeopardizing the economic recovery.”

The euro rose as much as 0.6 percent against the dollar after Trichet’s comments. The yield on the U.K.’s benchmark 10- year government bond climbed 8 basis points to 3.861 percent.

“Not all our liquidity measures will be needed to the same extent as in the past,” Trichet said in Frankfurt. The Bank of England said in London that a “pickup in economic activity may soon be evident” after the economy unexpectedly contracted in the third quarter.

Asset Bubbles

The ECB kept its benchmark rate at 1 percent and the Bank of England held its main rate at 0.5 percent.

Policy makers have spent much of the year pumping money into the global economy and are now shifting their focus to exit strategies as the global recovery stokes concerns about asset bubbles. Bank of England Chief Economist Spencer Dale has said he’s concerned about asset prices and Brazilian central bank President Henrique Meirelles said they will be a topic at the Group of 20 talks in Scotland this weekend.

“The costs of further action at this moment seem to be increasingly outweighing the benefit,” said Nick Kounis, chief European economist at Fortis Bank in Amsterdam and a former U.K. Treasury official. “We could be on a trajectory to get asset price bubbles a few years down the line. One of the lessons of this crisis is the need to prevent that.”

The Bank of England said it will increase its bond-purchase plan by 25 billion pounds to 200 billion pounds, the smallest increase since it started in March. While the economy contracted 0.4 percent in the third quarter, reports have shown that service industries and house prices are recovering, and manufacturing output jumped 1.7 percent in September.

Flagship

Trichet signaled the ECB’s first step will be to let its 12-month auctions of unlimited cash lapse. The operations have been a flagship policy of the central bank this year

Extraordinary liquidity measures will be “phased out in a timely and gradual fashion” in order to “counter effectively any threat to price stability over the medium to longer term,” he said.

The phasing out of those loans “is likely to be the first step in the ECB’s exit strategy,” said Colin Ellis, an economist at Daiwa Securities in London.

To contact the reporter on this story: Brian Swint in London at bswint@bloomberg.net.

Last Updated: November 5, 2009 11:15 EST