The ECB has been steadily raising interest rates

The widely expected move followed a quarter-point increase last month, and came after the Bank of England unveiled a shock rise in UK rates to 5.25%.

Despite the ECB's latest decision, many analysts believe the central bank will raise the cost of borrowing across the eurozone as early as next month.

Inflation remains a concern for the ECB as the eurozone economy expands.

Last month's quarter-of-a-percentage-point interest rate rise was the sixth such increase made by the ECB since December 2005.

German pressure

Analysts said that an improving European economic environment was likely to increase the pressure on the central bank to raise rates and rein in inflation.

The European Commission earlier raised its forecast for growth in the 13-member eurozone to between 0.4% and 0.8% in the first three months of 2007, and between 0.4% and 0.9% in the second quarter.

Separate figures from Germany, showed that the eurozone's biggest economy had expanded at its fastest pace in six years during 2006.

On the currency markets, the euro was up against the US dollar and Japanese yen as investors bet that European interest rates were set to climb.