LEAD: ECB holds rates as concerns deepen about Greek debt

Feb 9, 2012, 12:54 GMT

Frankfurt - The European Central Bank (ECB) held interest rates steady at 1 per cent on Thursday as concerns about the Greek debt crisis continued to deepen.

The ECB decided to keep interest rates at their historic low for the second consecutive month as it waits to see how economic events unfold in the coming months.

But while the ECB's 23-head rate-setting council was deliberating in Frankfurt, Greek lawmakers were battling in Athens to reach a new debt deal aimed at releasing 130 billion euros (172 billion dollars) from the European Union-led bailout fund to help it escape the threat of default.

As a result, the market focus was on ECB President Mario Draghi's press conference, set for 1330 GMT, for signs as to what further steps the bank might take to underpin the eurozone banking system and to shore up the region's economy.

With this in mind, Draghi was likely to face questions on what plans the ECB has for the estimated 40 billion euros of Greek government debt it holds, and whether it is prepared to accept a write down on the holdings.

It is now just over a 100 days since the 64-year-old former Italian central chief took over as head of the ECB.

Since then, Draghi is seen by analysts as having sharpened the ECB message to the markets, while at the same time launching a somewhat more robust monetary policy.

This includes delivering two 25 basis points rate cuts to underpin economic growth and pumping a record 489 billion euros worth of liquidity in the eurozone's financial system.

At his press conference, the ECB chief was expected to review the impact of the bank's move in December to pump additional liquidity into the financial sector to avert a credit crunch in the 17-member currency bloc.

But market analysts were also likely to pay close attention to Draghi's comments for hints on whether the ECB might consider turning on the liquidity tap again.

Many analysts are expecting the ECB to trim rates again by the middle of the year as inflationary pressures across the eurozone ease and to help ensure that the currency bloc's economy remains on a growth path.