The European Central Bank has left its key interest rate unchanged at 4.25 percent as the bank appears to feel inflation fears outweigh concern about the growing financial crisis that is creeping through Europe.

But markets will be looking for clues from bank President Jean-Claude Trichet at a news conference later Thursday for hints that it could soon lower the rate from a seven-year high amid growing fears of a recession.

The 15-nation euro zone is fighting high inflation, low growth and dim short-term prospects for consumer and industrial demand as the global financial crisis unfolds.

THIS IS A BREAKING NEWS UPDATE. Check back soon for further information. AP’s earlier story is below.

FRANKFURT, Germany (AP) _ The European Central Bank met Thursday amid calls for an interest rate cut in the face of the growing financial crisis, but analysts said the bank likely would hold its benchmark interest rate steady as inflation outweighs worries about the meltdown.

The 15-nation euro zone is fighting high inflation, low growth and dim short-term prospects for consumer and industrial demand as the global financial crisis unfolds.

While the bank is set to stay on hold for now, it could be prompted to cut its key rate from 4.25 percent _ where it has stood since July _ if the real threat of a recession raises its head in coming months, analysts say.

The key point will be what bank president Jean-Claude Trichet says at a press conference later Thursday.

“Trichet faces a tough job: he will be called on to deliver a consistent message explaining that growth risks have increased due to the recent heightened financial turmoil, but that price stability remains the ECB’s priority,” said Aurelio Maccario at UniCredit in Milan.

“Faced with collapsing business sentiment, rising unemployment and slowing inflation, it will be difficult for him not to adopt a more dovish posture today,” he said.

Howard Archer, chief U.K. and European economist at Global Insight, said that “further deterioration” in euro zone manufacturing and figures showing inflation easing from 4.1 percent in August to 3.6 percent last month reinforce “our growing belief that the ECB could cut interest rates from 4.25 percent to 4 percent before the end of 2008 as the heightened financial sector turmoil and very tight credit conditions heighten the danger of euro zone recession.”

A cut would bring the bank in line with its major peers, including the U.S. Federal Reserve, but Trichet so far has preferred to stand firm against inflation despite the uncertainty that has exploded in markets in the past three weeks.

On Tuesday night, he offered no hints about what sort of decision could be taken by the ECB governing council on Thursday.

“What I can say is ... we will ensure the stability of prices,” he said, adding that Europeans “are very chagrined to see the rise in the level of inflation.”

Trichet has consistently hammered at the effects of inflation on the euro zone, the 15-nation bloc make up of 320 million people that accounts for more than 15 percent of the world’s gross domestic product.

He has gone out of his way to warn about inflation’s effects and the bank has kept its interest rate up to combat it.

Higher interest rates can reduce inflation because demand for goods and services can fall as a result of money becoming more expensive. At the same time, higher rates can make it harder for businesses to borrow and expand, with growth slowing as a result.

Instead of cutting rates, the bank has addressed the financial crisis by increasing its short-term lending to banks fearful of lending money to each other, fulfilling its role as lender of last resort.

___

On the Net:

http://www.ecb.int