ECB rate cut

ECB President Jean-Claude Trichet announced the cut on Thursday, saying the bank was planning to shore up financial market confidence and boost liquidity by extending the period over which the ECB lends funds to banks at fixed rates from 6 months to 12 months and purchasing bonds.

The quarter point rate cut was the fourth this year by the Frankfurt-based bank, which sets monetary policy for countries that share the euro currency.

Trichet said that inflationary pressures had diminished in the economic downturn, but that the euro-zone economy appeared to be stabilising.

"The latest economic data suggest tentative signs of a stabilisation at very low levels after a first quarter which was significantly weaker than expected," he told the news conference after the bank's decision.

"The world economy including the eurozone is still undergoing a severe downturn with the prospect of both external and domestic demand remaining very weak over 2009 before gradually recovering in the course of 2010," Trichet said.

He also said inflation expectations were consistent with keeping it in line with the bank's target of price growth at or just below 2 percent.

Eurozone inflation is at a record low of 0.6 percent and although some economic data are showing signs of stabilisation, the European Commission this week forecast the eurozone's economy would shrink by 4.0 percent this year.

The ECB has cut rates from 4.25 percent since last October. Trichet indicated that Thursday's rate cut was not necessarily the last.