Euro-area banks tapped the European Central Bank for more three-year cash than economists forecast in an operation that may boost bond and equity markets.

The Frankfurt-based ECB said today it will lend 800 financial institutions 529.5 billion euros ($712.2 billion) for 1,092 days. Economists predicted an allotment of 470 billion euros, according to the median of 28 estimates in a Bloomberg News survey. Banks borrowed 489 billion euros in the first three-year operation in December.

“The ECB is opening the floodgates again,” Carsten Brzeski, senior economist at ING Group in Brussels, said before today’s results. “It really is the only game in town to prop up the banks and the economy.”

Bond and equity markets have rallied since the ECB’s first three-year loan, suggesting banks are investing at least some of the money in higher yielding assets. That’s helped ease concern about a credit crunch and won governments time to agree on measures to contain the sovereign debt crisis. The risk is that banks become too reliant on ECB money and fail to take the steps needed to strengthen their balance sheets.

“There’s a big difference between stopping the rot and starting a recovery,” said Steve Barrow, head of Group-of-10 research at Standard Bank Plc in London. The loans “might have done the first, but they won’t do the second,” he said.

‘Sarkozy Trade’

The economy of the 17 nations sharing the euro is forecast by the European Commission to contract 0.3 percent this year as the debt crisis prompts governments and consumers to cut spending. The ECB’s loans are intended to relieve liquidity strains and grease the flow of credit to households and businesses, boosting growth.

A byproduct has been the so-called “Sarkozy trade,” where yield-hunting banks use some of the cash to buy sovereign bonds -- an idea first floated by French President Nicolas Sarkozy.

Since the first three-year loans were awarded on Dec. 21, the yield on Spanish two-year bonds has fallen to 2.24 percent from 3.6 percent, while the Italian equivalent has dropped to 2.14 percent from 5 percent. The Euro Stoxx 50 Index of stocks is up 9 percent this year.

The three-year funds cost the average of the ECB’s benchmark interest rate -- currently at a record-low 1 percent - - over the period of the loans and banks have the option of repaying them after a year. To encourage take-up, the ECB increased the pool of collateral banks can use to obtain them.

No further three-year operations are scheduled and ECB officials have indicated they would be reluctant to offer a third tranche.

“If number one was a success and number two was a success, that doesn’t mean there has to be number three,” ECB council member Ewald Nowotny said on Feb. 27.

In the wake of the first operation, the ECB’s balance sheet ballooned to a record 2.74 trillion euros. That prompted German council member Jens Weidmann to warn that the central bank mustn’t “lose sight of its mandate” to control inflation by taking on “excessive risks.”