ECB focuses on inflation, not bond spreads, Nagel says

By Marc Jones

LONDON, Oct 1 (Reuters) - European Central Bank policymaker Joachim Nagel said on Thursday the ECB's debt-buying tools are designed to safeguard price stability, not target specific sovereign bond spreads, as a selloff in French government debt fuelled speculation about possible intervention.

The Bundesbank president was asked whether the ECB could activate its Transmission Protection Instrument (TPI), which allows bond purchases for countries facing market pressure provided they maintain sound economic policies.

"You mentioned one, but we have several other tools, but it has nothing to do with maybe certain spread levels or things like that," Nagel said. "It is (about) price stability."

Nagel added that he did not comment on the spread levels of individual countries.

French government bond yields earlier hit their highest level since 2002, pressured by concerns over the country's finances, the prospect of a far-right presidential victory and renewed inflation worries in the euro zone and beyond.

The spread between French and German government bond yields, a key gauge of the premium investors demand to hold French OAT over German Bunds, widened to 132.86 basis points, its highest level since the euro zone debt crisis in 2012.

"We think inflation risk has been critical in pushing OAT-Bund spreads higher," Reinout De Bock, a macro strategist at UBS, said. "Higher inflation risk, higher term premia, political and fiscal uncertainty are now reinforcing one another."

The ECB has raised rates twice since June to stem a rise in inflation fuelled by the war in Iran, which has curtailed the supply of oil and gas to the energy importing euro zone.

(Reporting by Marc Jones in London; Writing by Francesco Canepa; Editing by Alison Williams and Andrew Cawthorne)