ECB holds rates steady at 2% amid news of attacks

FRANKFURT, Germany (AP) - The European Central Bank kept its key interest rate unchanged at 2 percent, despite worries about growth and the unsettling news of terrorist attacks on the London transport network. 

Bank President Jean-Claude Trichet said Thursday he did not believe the series of attacks in central London "will have any serious impact'' on markets in the long term, likening them more to the March 2004 bombings in Madrid than the Sept. 11 attacks on the United States. 

Trichet said he had discussed the situation with Bank of England head Mervyn King and U.S. Federal Reserve Chairman Alan Greenspan and concluded that financial systems were working normally. 

"We are alert, we are vigilant, we are monitoring all developments,'' he said at a news conference. 

But he said he saw "no particular information that were calling for action.'' 

European stock markets plummeted on news of the attacks, but later recovered some ground. 

Following the Sept. 11 attacks, the bank made special credits available to financial institutions the day after the attacks and cut interest rates in coordination with the Fed several days later.  

But Trichet said such measures were not needed now. 

"We do not trust that these events will have any serious impact,'' he said, adding that it was the duty of financial institutions to "keep the appropriate calmness.'' 

Trichet said similar questions about special measures arose after the Madrid bombings, but he noted those attacks did not a have long-lasting impact on markets. 

Trichet also expressed the bank's "deep sympathy and total solidarity with the British people.'' 

The bank's decision to leave its key refinancing rate alone at 2 percent was widely expected, as it continues to concentrate on keeping inflation under control - efforts Trichet stressed on Thursday. 

Trichet said inflation risks "warrant close monitoring'' - a hint that the bank isn't leaning toward a rate cut. 

The bank's decision mirrored one earlier Thursday by the Bank of England, which left its key rate at 4.75 percent - where it has stood since August 2004. 

The ECB - whose rate has remained unchanged since June 2003 - has faced increasing calls to cut rates to stimulate the economy against a background of sluggish economic growth. 

Lower rates can help create jobs and boost growth and stock markets in the short term, but they also can fuel corrosive inflation down the road. 

"We consider that we have the appropriate level of interest rates,'' Trichet said, noting it was the bank's aim to be "an anchor of stability.'' 

Pressure on the bank to cut increased after Sweden's Riksbank unexpectedly cut its own rates to 1.5 percent last month. 

The Bank of England had also faced calls to ease its main rate in the wake of sour economic figures. 

But analysts are careful to point out that for the most part, indicators in the 12 countries that use the euro show their economies are improving. 

Manufacturing results for Germany, Italy and France were better in June. 

And though the euro zone's services purchasing manager's index slipped slightly this week, it still showed expansion. 

Trichet repeated his regular call for the euro-zone countries to push through structural reforms to remain competitive in the global economy. 

"A decisive and comprehensive set of measures aimed at achieving a more dynamic and competitive European economy with flexible labor and product markets is urgently needed,'' Trichet said. 

Attempts to push through market and social welfare reforms have proved largely unpopular with European voters, such at the Germans who handed Chancellor Gerhard Schroeder's party a series of stinging defeats at the polls after his government made limited cuts in social welfare benefits and worker protections. - AP 

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