Options on the table include loosening collateral criteria so that institutions have more access to cheap ECB cash and offering them longer-term loans to grease the flow of credit to the economy, said the officials, who spoke on condition of anonymity because the discussions are private. Two said an interest rate cut is likely, with only the size of the reduction to be determined for the monthly decision tomorrow.

The ECB is focusing on getting banks lending again rather than increasing its government bond purchases to fight Europe’s debt crisis. The central bank’s insistence that governments take measures to restore investor confidence appears to have paid dividends, with Italian and Spanish yields plunging after Germany and France agreed to move the 17-nation euro area toward a fiscal union.

The euro rose more than 0.2 percent to $1.3399 before erasing gains, and Spanish five-year notes pared a drop, leaving the yield 29 basis points higher at 4.98 percent after it earlier reached 5.04 percent. U.S. stock-index futures also pared losses.

Bank Difficulties

The ECB has indicated it will act to prevent a credit shortage as this falls within its monetary policy remit.

President Mario Draghi said on Dec. 1 that the ECB had “observed serious credit tightening” recently and is “aware of the continuing difficulties for banks, due to the stress on sovereign bonds, the tightness of funding markets and scarcity of eligible collateral in some financial segments.”

Draghi holds a press conference at 2:30 p.m. in Frankfurt tomorrow, 45 minutes after the ECB’s rate decision is announced.

Policy makers may seek to broaden the pool of eligible collateral for ECB loans by loosening rules governing the use of asset-backed securities, the officials said. They may also increase the amount of uncovered bank bonds that can constitute a lender’s collateral portfolio from the current 10 percent limit, they said.

The ECB is already lending banks as much money as they want against eligible collateral for periods of up to a year. It is likely to add two-year loans to its arsenal, two officials said. While a three-year loan has been discussed, it is unlikely at this stage, they said.

Basel Rules

One official said longer-term loans might encourage banks to lend to companies and households, and they would also help financial institutions meet new Basel rules on holding longer- term liquidity.

Tomorrow’s meeting is the ECB’s last scheduled opportunity to take policy action this year. It will be accompanied by publication of the central bank’s latest projections, including a 2013 inflation forecast that may justify further monetary stimulus.

Draghi said last week that the ECB’s goal is to maintain price stability “in either direction,” suggesting it would act as forcefully to prevent a significant undershooting of its 2 percent ceiling as it would to stop an overshooting.

“This applies to both the setting of official interest rates and the implementation of non-standard measures,” Draghi said.

One official said the economic outlook has deteriorated markedly since Draghi said on Nov. 3 that the ECB expected a “mild recession.”

Policy makers will cut the benchmark rate by a quarter percentage point to 1 percent, according to 53 of 58 economists in a Bloomberg News survey. Only two predict a half-point reduction to 0.75 percent.