* Constancio says ECB aims to return to normal operations
* Says money markets not ready yet
* Portugal, Ireland situation not as acute as Greece's was
* Markets 'perhaps' overreacting
(Changes dateline, recasts, adds quotes)
BRUSSELS, Sept 29 (Reuters) - The European Central Bank will return to normal liquidity operations only when money markets are back on their feet, ECB Vice-President Vitor Constancio said on Wednesday.
Constancio said although there were some positive developments in market activity, trading was still not back to pre-crisis levels.
"Money markets are normalising ... (but) we are not in a situation of full normalisation," Constancio said on the sidelines of the Eurofi Financial Forum in Brussels.
"The objective is to go back to normal operations of course, when we can see that the situation in money markets is normalised."
Banks borrowed 104 billion euros in three-month funds from the ECB on Wednesday, leaving a large gap to the 225 billion euros in long-term loans expiring this week, though they have the chance of topping up for six days on Thursday. [ID:nFAE005811]
Constancio said he expected the impact of this week's operations on liquidity supply to be in line with past precedents, which have seen an overall gradual decline in liquidity levels as six and 12-month lending operations expire.
"Liquidity management has been evolving in the right direction,"he said, declining to comment on specific measures to tackle bank addiction to ECB funds.
Constancio declined to give details on when the ECB will plan its next stage in the exit process from emergency loans.
"We never precommit and we never announce beforehand what we are going to do," he told reporters.
The ECB was monitoring closely widening bond yields spreads for Ireland and Portugal, but he said the situation in these countries was not as bad as it was for Greece in May when the EU and ECB came up with a rescue plan.
"You cannot really compare. Of course there has been this widening of spreads which we are monitoring very closely but I don't think that the situation is as acute as it was (then)," he said.
Markets were "perhaps" overreacting, but there were doubts about structural reforms, Constancio said, stressing the need for tougher rules on debt and deficits.
"The rules must be strengthened to avoid episodes like the sovereign debt situation we are witnessing and so we always support all the new measures."
On growth, he said the current quarter would be positive.
"Overall the indicators for the third quarter show that we will have positive growth, not as positive as the second quarter but the projections that have been published are on track to be realised," Constancio said.
He dismissed a comment by Brazilian Finance Minister Guido Mantega that the world is in an "international currency war". [ID:nDEG005698]
(Reporting by Krista Hughes and Huw Jones; Editing by John Stonestreet)