Jean-Claude Trichet has vowed to keep a close eye on inflation

There had been some speculation that the ECB would go for a 0.5% rise, but analysts agreed that recent market volatility made it settle for 0.25%.

The ECB has raised interest rates to tackle inflation which currently stands at 2.5%, above the 2% target level.

Inflation has risen on the back of high energy prices and economic recovery.

'Sensible action'

"The conditions are in place for growth in the euro area, remaining close to its potential rate, despite the impact of the rise of oil prices," said ECB president Jean-Claude Trichet at the news conference which followed the latest rate decision.

Analysts currently expect eurozone interest rates to rise to 3.25% by the end of the year.

"The 25 basis point interest rate hike by the ECB means that it is maintaining a steady pace in the normalization of interest rates," said Howard Archer of Global Insight.

"This seems the most sensible course of action given that a 50 basis point hike would have represented a more aggressive stance by the ECB and risked sending the euro up to new highs against the dollar, with damaging implications for eurozone growth prospects."

'Spanish meeting'

The latest ECB decision was made in Madrid at the headquarters of the Bank of Spain, one of the two times each year that the ECB holds its rate-setting meeting outside of its Frankfurt hometown.

In both May and April the ECB voted to keep rates on hold.

Until December 2005, the European Central Bank had left its rate unchanged at 2% for more than two years.

Some commentators worry that too fast a rise in European interest rates could choke off the slow-starting recovery in the eurozone, the twelve nations of the EU which use the single currency.