Bank expected to signal its ready to begin withdrawing liquidity measures By William L. Watts, MarketWatch LONDON (MarketWatch) -- The European Central Bank, as expected, left its key lending rate unchanged at a record low 1% Thursday amid data showing that lenders in the euro zone have been reluctant to make loans. The spotlight now shines on ECB President Jean-Claude Trichet, who is scheduled to hold his monthly news conference in Frankfurt at 8:30 a.m. Eastern. Trichet is widely expected to signal that the central bank is ready to begin slowly withdrawing a range of special liquidity measures it implemented during the financial crisis in an effort to keep credit flowing across the 16-nation euro zone. He is expected to confirm that the ECB's upcoming round of one-year loans to commercial banks will be the last. Modifications to shorter-term loan measures may also be announced, analysts said. At the same time, economists say Trichet will likely want to maintain the ECB's position that its liquidity operations and monetary policy are distinct from each other. A fragile economic recovery will likely make the ECB's Governing Council reluctant to signal that official interest rates are likely to rise any time soon, they said. ECB staff are set to update their economic projections. Economists expect the staff to revise higher its outlook for euro-zone growth, while inflation forecasts are expected to show price rises will remain below the ECB's annual target of near but just below 2%. The euro-zone economy, led by Germany and France, returned to growth in the third quarter, data from the European Union statistics agency Eurostat confirmed Thursday. The data matched a preliminary estimate released last month that showed a 0.4% quarterly rise, the first increase since the first three months of 2008. But economists warned that prospects for a sustained recovery remained suspect, with the data showing the bounce was fueled in large part by inventory adjustments while consumers remained reluctant to spend. See story on third-quarter GDP. Meanwhile, the final composite November purchasing managers index produced by Markit Economics on Thursday rose to 53.7 from 53.0 in October. The gauge of private-sector activity is in line with real fourth-quarter GDP growth of 0.4%, said economists at Barclays Capital. Economists said expectations for further increases in unemployment and worries about ongoing weakness in parts of the euro zone, such as Spain, Ireland and Greece, will likely leave policy makers reluctant to signal they're ready to begin hiking rates in the near future. Economists said Trichet may also attempt to keep a lid on the euro, which has pressed back above $1.50 versus the dollar. The euro's rise has raised concerns among European business leaders and politicians over the competitiveness of euro-zone exports. Trichet, in an apparent effort to soften the euro, has in the past praised U.S. officials for a commitment to a "strong dollar policy."

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