ECB Expected to Keep Rate at 3.75 Pct.

DUBLIN, Ireland - The European Central Bank is expected to hold its key interest rate steady Thursday but set the stage for a likely quarter-point increase next month as it keeps a steady hand on the pulse of the euro zone.

The bank's governing council - assembling in Dublin for one of its biannual meetings away from its Frankfurt base - is expected to discuss the growing pace of economic growth in the 13-nation euro zone, whose 317 million residents generate more than 15 percent of the world's gross domestic product.

Analysts agree that the ECB will leave its benchmark rate unchanged at 3.75 percent, but only for this month.

A string of seven quarter-point rate increases since December 2005 has helped keep inflation in check. Despite the risk of sending the euro to uncomfortable highs and hurting exports, the ECB is expected to signal its intention to raise rates again.

In a poll of 51 financial institutions by Dow Jones Newswires, every analyst forecast that the bank would hold steady in Dublin but raise the rate to 4 percent by the summer.

Markets will be paying more attention to policy guidance from ECB President Jean-Claude Trichet. Those looking for any sign that interest rates have peaked are likely to be disappointed, economists say, with Trichet unlikely to give the all-clear on inflation.

The bank and its policy makers have warned repeatedly about "a number of medium- to long-term risks," as ECB Vice President Lucas Papademos noted last week.

In the Dow Jones survey, 28 of the analysts polled said they expect the rate to reach at least 4.25 percent by the end of the year.

Gilles Moec, a Bank of America analyst, said he expected the ECB to signal Thursday it will raise rates by a quarter-point in June. He said he expected Trichet to express the view that the bank needed to exercise "strong vigilance" against inflation, a well-understood cue for an imminent hike.

"If the euro-zone economy gains further momentum in late 2007 and early 2008 ... the ECB will probably raise rates further to 4.5 percent by mid-2008," said Holger Schmieding, Bank of America's chief economist for Europe.

However, the euro's rise versus the U.S. dollar has been worrying exporters, who make less money on goods and services sold in the United States. In Germany, Europe's largest economy, the March trade surplus widened more than expected to 18.4 billion euros ($24.9 billion) from 14.2 billion euros ($19.2 billion) in February, a move largely driven by euro strength.

The euro hit a record of $1.3682 on April 27 but has since fallen back below $1.36. Analysts say the euro could climb to new highs this summer.

On Wednesday, the U.S. Federal Reserve kept its federal funds rate unchanged at 5.25 percent for the eighth consecutive time. The Bank of England, which meets Thursday, is expected to raise its rate from 5.25 percent to 5.5 percent.

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