Eurozone rates left on hold

The European Central Bank left interest rates on hold yesterday despite mounting evidence that the economy of the 12-nation eurozone is slowing.

However, analysts expect the central bank to cut rates again within the next few weeks to counter the impact of the terrorist attacks on the US.

Meanwhile, French prime minister Lionel Jospin called for a show of "economic patriotism" to keep the economy on track.

"Faced with terrorism and the disorganisation it is trying to provoke, there is an almost civic responsibility on the part of business leaders and consumers. They too must resist intimidation and support economic activity," he told a French newspaper.

Mr Jospin's remarks were published as figures revealed that French business confidence has fallen to a five-year low. "It's very negative, pretty much everything went down," said Partick Mange at Merrill Lynch.

In Germany the finance ministry warned exports and industrial production were being hit by weaker demand. "The key to further economic developments will be how we cope with the still unforeseen economic impact of the terror attacks in the United States," it said.

Financial markets had been expecting the ECB, which cut rates by half a percentage point to 3.75% on September 17, to leave rates unchanged at yesterday's meeting.

Holger Fahrinkrug, senior economist at UBS Warburg in Frankfurt, noted that the cut last week had been exceptional and that the ECB would be looking for further evidence "that growth risks have increased and some reassurance on inflation" before moving again.

But he said the September 17 rate cut showed that the ECB was "prepared to be flexible, to do whatever is required".

The ECB made no official comment after the meeting but one of its council members, Italian central bank governor Antoni Fazio, indicated that the bank would need a little more time to assess what was really happening. He said: "You have to look at the data a little better. It's too early to understand what's going on, we need a few weeks to understand what is really going to happen to the world economy."

On the foreign exchanges the decision to leave rates on hold had little immediate impact on the euro. The main focus of attention was the Japanese yen where there was continued intervention by the Bank of Japan - first via the ECB and then, reportedly, by the New York Federal Reserve.

The action pushed the yen as low as ¥120 to the dollar but it later moved back to ¥119.60 as sentiment turned against the dollar as share prices on Wall Street began to fall.