China on Tuesday offered support to Europe's efforts to deal with the peripheral debt crisis and said Beijing will not cut down its holdings of European sovereign bonds.

The Chinese move helped euro shake off a two-week slump as speculation intensified that China, armed with a $2.6 trillion reserves in foreign currency, could step in to alleviate the fiscal crisis of the peripheral countries in the eurozone. The euro, however, dropped as Moody's said it could likely downgrade Portugal's rating.

“EU members have taken a number of steps to actively respond to the sovereign-debt crisis,” Chinese Vice-Premier Wang Qishan said at the two-day EU-China High Level Economic and Trade Dialogue which concluded in the Chinese capital on Tuesday.

“We hope these measures will quickly produce results and lead to a steady recovery of the EU economies,” Wang added.

European Union leaders said last week differences over amending the EU treaties to make way for a permanent crisis mechanism were resolved, resulting in the setting up of a new system to replace the 750-billion-euro EU bailout fund. The leaders also underscored unflinching commitment to prop up the euro common currency. They said financial aid will be offered to debt-stricken countries, 'if indispensable, to prevent a euro meltdown.

In October, Chinese Premier Wen Jiabao offered to buy more Greek government bonds at a time when the debt-hit county was facing down a steep rise in its financing costs. With its foreign exchange reserve, China has already bought and is holding Greek bonds and will keep a positive stance in participating and buying bonds that Greece will issue, Wen was quoted by Reuters.

Besides buttressing the Chinese support, over the past year, for Europe's plans to wriggle out of a biting debt crisis, the Chinese vice-premier also called for boosting ties in sectors like energy and aviation.

However, the assessment of the European debt problem by China's Commerce Minister Chen Deming was less upbeat. He said China was watching the direction of the crisis and the measures taken by the EU and the International Monetary Fund (IMF) to counter it.

We are very concerned about whether the European debt crisis can be controlled, Chen said at a briefing at the summit.

We want to see if the EU is able to control sovereign debt risks and whether consensus can be translated into real action to enable Europe to emerge from the financial crisis soon and in a good shape, he said.