(Refiles to change headline)
* Speculation focuses on ECB to expand bond buying
* White House watches crisis closely
* U.S. Treasury envoy heads to Berlin
* Germany struggles to sell debt
* Portugal borrowing costs soar (Adds comment from Treasury, White House, German finance minister, European debt markets)
By Luke Baker and John O'Donnell
BRUSSELS, Dec 1 (Reuters) - The European Central Bank is under pressure to unveil new steps to stabilize the euro zone when it meets on Thursday as the currency bloc battles a crippling debt crisis that has stoked contagion fears in the United States and Asia.
Germany struggled to sell its government debt on Wednesday and Portugal's borrowing costs soared in further signs that an 85 billion-euro ($110.7-billion) EU/IMF rescue of Ireland last weekend and public assurances from leaders that the euro will be defended at any cost have failed to impress investors.
European Union leaders appeared to pass the baton to the ECB, which holds its monthly meeting on Thursday. Economic and Monetary Affairs Commissioner Olli Rehn said recent EU actions provided a sound basis for further stabilization measures by the central bank, and European Commission President Jose Manuel Barroso said he was confident the ECB would take whatever action was needed.
"I'm sure the ECB is analyzing the current situation and that it will take the decisions necessary to guarantee the financial stability of the euro zone," he said.
In Washington, the White House said President Barack Obama was receiving regular updates during his daily economic briefings, while a senior Treasury official was heading to Berlin for talks on the economic situation after meetings on Wednesday in Madrid.
"It's important to the global economy and to our economic recovery," said White House spokesman Robert Gibbs. A senior G20 source in Asia also told Reuters that deputy finance ministers discussed the situation on Monday..
A U.S. official also told Reuters that Washington would support boosting an EU rescue facility via IMF funds, news that bolstered the euro currency. "It is up to the Europeans," the U.S. official said. "We will certainly support using the IMF in these circumstances."
A Treasury Department spokesman later said an "extra commitment is not something we're discussing right now." Still, the prospect of further help for the EU lifted the euro currency, which was trading at $1.3136 late on Wednesday, ending three days of losses that it had taken it to a 10-week low.
HIGHLY CONTROVERSIAL
Markets were focusing on ECB President Jean-Claude Trichet's news conference due at 1330 GMT on Thursday where the central bank could announce an expansion of its government bond purchase program, launched in May after Greece was bailed out.
But it has been highly controversial within the bank and used erratically. Influential Bundesbank head Axel Weber has called for the program to be scrapped, and fellow ECB members have criticized the U.S. Federal Reserve's decision to buy $600 billion of U.S. debt in a policy known as quantitative easing.
Any sense from fiercely independent central bankers that they were being bullied by EU politicians into making bond purchases could further deepen opposition to such a step.
With the euro under threat, however, they may decide they have no other choice.
In recent days, economists have urged the ECB to throw out its rule book and do all it can to save the euro, particularly since governments seem to be running out of ideas for restoring confidence in their monetary union.
"There is a feeling that things have got to a point where the ECB has to do more," said Gilles Moec, an economist at Deutsche Bank.
The premium investors demand to hold Portuguese, Spanish and Italian bonds instead of German benchmarks fell and European bank stocks rebounded, with Spain's Banco Santander and BBVA up more than 7 percent after the Spanish government announced new steps to reduce the national debt.
Debt auctions in Portugal and Germany, however, showed investors remain nervous. Lisbon's borrowing costs surged in a 12-month bill auction and a German five-year note sale drew the weakest demand in half a year.
Manufacturing data underscored the economic divergences plaguing Europe.
Citigroup's chief economist said this week euro zone turmoil might be the "opening act" of a global sovereign debt crisis that could infect the United States and Japan.
EU plans to make private bond holders bear some of the pain from any sovereign debt restructuring after mid-2013 have led investors to reassess the risk of putting their money in the government bonds of high-debt countries.
But German Finance Minister Wolfgang Schaeuble said on Wednesday that all the anxiety in financial markets was overblown.
LIMITED OPTIONS
Strong action by the ECB is one of a small number of unattractive options for stopping the rot, given divisions among European governments over how to respond.
Germany has resisted pressure from France and others to turn the euro zone into a "fiscal union," a step that could help the bloc address its economic imbalances but require members to sacrifice sovereignty for the good of the group.
Chancellor Angela Merkel is also sceptical about putting up more funds for bailouts, concerned that German taxpayers could end up underwriting the rescues of countries her government believes have become targets because of economic mismanagement.
Pressure from Germany's partners is mounting. Portuguese Treasury Secretary Carlos Pina told Reuters the EU needed to "deepen its budget and create a European Treasury" to defend the euro, a move that would be anathema to Berlin. (Writing by Noah Barkin; Editing by Andrew Dobbie and Sandra Maler)