Eurozone rates remain unchanged

Fears are growing that a strong euro will hurt exports

Eurozone interest rates have been kept at 2% by the European Central Bank.

The ECB's decision not to change interest rates was widely expected by economists, though some believe a cut could help to stem the euro's rise.

The euro's rise to record levels against the dollar prompted Germany's Economics Minister Wolfgang Clement to call for a rate cut on Thursday.

The latest eurozone economic data showed the region's recovery is continuing, but at a slow pace.

Competitiveness fears

ECB governor Jean-Claude Trichet said after the rate decision that fears euro's gains against the dollar could hurt exports and hamper growth were unfounded.

He acknowledged the exchange rate could "have some dampening effects on exports" but believes that "export growth should continue to benefit from the dynamic expansion of the world economy". Mr Clement said earlier on Thursday that "the euro's strength and the dollar's weakness are the biggest risk to growth at the moment".

He said he was "hoping for a signal from the European Central Bank", adding "I'm of course thinking about an interest rate cut".

European Union Trade Commissioner Pascal Lamy also highlighted the threat to EU exports posed by the rising euro.

The euro topped $1.28 for the first time ever against the dollar on Tuesday, the same day the dollar dropped to an 11-year low against the pound.

Fears about growth in the euro zone prompted the ECB to cut interest rates in June, but the region's major economies have been looking healthier in recent months.

Confidence dip

Mr Trichet insisted that world economic growth was looking healthy and that euro area output and confidence was "consistent with an ongoing recovery" that would pick up speed during 2004.

Economic data released on Thursday showed the recovery continues but lacks strength.

Confidence in the eurozone's economic outlook dropped 0.4 points in December to 95.6 on an index published by the European Commission.

However, analysts were not too concerned as the dip was small and even in the gloomiest sector, manufacturing, confidence remained high compared to any time in the last two and half years.

The survey found that consumer confidence remained stable, while manufacturers were feeling less optimistic. The industrial sub-index dropped 2 points.

The euro's recent rise has put paid to expectations among some economists that the next move in eurozone rates would be upwards.

The ECB has forecast growth will be between 1.1% and 2.1% in 2004, double its best expectations of 0.6% in 2003.

The Bank of England earlier held rates at 3.75%, adopting a wait-and-see policy after November's quarter-point rise, which was the first upward move in interest rates for nearly four years.

One euro was worth $1.267 and 69.3 pence at 1338 GMT.