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European Central Bank opts to hold its key rate steady

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FRANKFURT, Germany (AP) — The European Central Bank left its key interest rate steady Thursday, continuing its vigil against inflation despite pressure to give the region's sagging economy a boost with lower borrowing costs.

ECB President Wim Duisenberg shattered hopes for a rate cut earlier this week, when he insisted that the current level is what's needed to keep inflation in check.

Economists, many of whom have been urging the ECB to cut rates for months, had largely expected the Frankfurt-based central bank to stay its hand Thursday when its policymakers gathered to assess monetary conditions in the 12 European countries sharing the euro common currency.

Duisenberg had said Tuesday there was no new data since the ECB's last meeting to support a rate cut right now.

On the same day, however, the European economy got more bad news when figures showed that consumer confidence and industrial sentiment took a dive in June throughout the region.

Duisenberg's attitude stands in stark contrast to that of the U.S. Federal Reserve, which has cut interest rates six times this year in an effort to stave off recession. Unlike the Fed, which considers economic growth a priority, the ECB has the narrower task of combatting inflation across Europe.

Inflation in Europe currently runs at 3.4 percent, far above the bank's 2 percent target, although most forecasts suggest it will begin to wane soon.

"They want to wait for a clear-cut sign that inflation is falling," said Torsten Polleit, an economist with Barclays Capital in Frankfurt. "They will lower rates. The question is not direction, but timing."

The ECB last cut its main interest rate May 10 by a quarter point to 4.5 percent. Economists expect the bank to cut the cost of borrowing again before the summer's out and give a welcome boost to the region's misfiring economy.