Interest rates in Europe are staying at 3.25% for the tenth month in a row, amid mounting concerns about Europe's recovery that outweighed any lingering worries about inflation.

The decision, which came as little surprise to observers, followed a teleconference of the European Central Bank's council.

After July's decision, bank chief economist Ottmar Issing said the bank was following a "wait-and-see" policy.

In the intervening weeks, the wild stock market gyrations, dampened consumer sentiment and fears that weakness in France and Germany could hammer European growth have apparently done little to change the board's mind, economists said.

"Whatever the ECB view in early July, the world has certainly changed since then," said David Page of investment bank Investec.

"Equity markets have continued to plummet since the last meeting... we believe that the economic outlook has worsened sufficiently to see rate hikes off the agenda for this year."

The Dax index in Germany, the biggest economy in the Eurozone, has fallen almost 30% since the beginning of the year, while growth is unlikely to top 1% after last year's anaemic 0.6%.

Better than feared

The move came despite encouraging new figures which seemed to suggest that even though the markets may be panicking, the "real" economy is holding up relatively well.

The eurozone purchasing managers' index (PMI), which measures business optimism about future sales, slipped slightly to 51.3 in July from 51.6 in June - a figure which nonetheless still points to expansion.

"I'm pleasantly surprised," said Adolf Rosenstock from Nomura in Frankfurt.

"The small drop really provides some comfort, because the environment has darkened so much."

Even so, the main factor in last month's decision to keep the main refinancing rate at 3.25% - the apparently inexorable strengthening of the euro - remains a concern.

The eurozone's single currency has risen 12% against the dollar since the start of the year, worrying exporters but also dampening the prospects of a rise in inflation.

The next decision will not be till 12 September, after the ECB's summer holiday.