German Chancellor Angela Merkel's cabinet passed a draft bill that will ban naked short selling of euro zone government bonds and German shares, coalition sources told Reuters on Wednesday.

But an outright ban on euro currency derivatives has been put off for now following last-minute changes to the legislation.

The Finance Ministry will instead be authorized to ban euro currency derivatives by decree if it would serve to "avoid or dispel serious drawbacks to the stability of the financial markets, or faith in (their) operational capability", according to a copy of the bill obtained by Reuters.

Earlier versions of the bill which called for an outright ban came up against stiff resistance. Critics had warned that could have had damaging effects and be hard to implement.

The bill will need to pass both houses of parliament.

Germany last month announced a ban on some high-risk bets that prices of bonds and stocks will fall, in an attack on the financial speculation which it blames for amplifying the euro zone debt crisis.

The unilateral initiative to impose an immediate ban on naked short-selling of euro government bonds and on related transactions in credit default swaps (CDS) sent shockwaves through financial markets and ruffled the feathers of some European partners.

The financial regulator has also banned naked short sales of shares in Germany's 10 leading financial institutions.