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Written by: Staff
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LONDON, Mar 2 (Reuters) The euro was steady against the dollar on Thursday after the European Central Bank raised rates to 2.5 per cent as expected, and investors looked to comments from the bank's president for clues on future tightening.

The ECB's decision to raise rates by 25 basis points was widely expected but investors are keen to hear what president Jean-Claude Trichet has to say at a 1330 GMT (1900 IST) news conference.

The single currency has been stuck in a $1.18-$1.23 range since December and analysts say Trichet would need to sound hawkish to push the euro above that range, given U.S. rates are also seen heading higher in the near term.

''There was no surprise with the interest rate move, but the market will be looking for more indications from Trichet as to whether the ECB will raise rates again this year,'' said Geoff Kendrick, currency strategist at Westpac.

''We probably won't get much from Trichet, which might play as a euro negative.'' The ECB last upped rates in December. Euro zone interest rate futures are pricing in the region's borrowing costs at three per cent by the end of this year and the Federal Reserve is expected to take U.S. borrowing costs to 5 per cent from 4.5 now.

By 1310 GMT (1840 IST), the euro was steady on the day at $1.1922, having hit a three-week high of $1.1974 on Wednesday.

The euro hit fresh one-week highs against sterling after the euro zone rate decision, at 68.36 pence.

The dollar was up 0.2 per cent at 116.36 yen, off a one-month low of 115.43 set on Wednesday.

The Canadian dollar was trading close to a 14-year high of C$1.1329 set on Wednesday. The Bank of Canada is expected to raise rates by 25 basis points to 3.75 per cent at its policy meeting next week.

EURO RECOVERY? The euro drew support this week after a survey showing the euro zone's manufacturing sector grew at its fastest pace in 19 months.

Thursday data continued to offer support. Euro zone producer prices rose an above-expected 1.2 per cent in January, German retail sales rose by a far stronger-than-expected 2.7 per cent and German engineering orders surged 25 per cent in January.

The single currency was at 1.5648 Swiss francs, close to its best levels since April 2004 at 1.5678 hit earlier this week.

RBS analysts said growing risk appetite and low Swiss rates were helping the euro against the franc.

JAPANESE INFLATION The market has been dominated by the outlook on interest rates, with the yen driven higher this week on expectations the Bank of Japan will scrap its ultra-easy monetary policy soon.

Japan's top financial diplomat Hiroshi Watanabe said on Thursday recent currency moves were rough and reiterated the authorities would act if needed.

Investors are focused on Friday's release of Japanese inflation data for January to see if a recent rise in consumer prices is sustainable enough to meet the BOJ's condition for a shift in monetary policy.

''We are looking for a rise of 0.4 per cent in the core index, in line with the consensus, and that could give the yen a lift,'' said Kamal Sharma, currency strategist at Bank of America.

BOJ policymakers gather next week, when some analysts expect them to start the process of a shift away from the current policy, ahead of an April meeting.

Short-term Japanese government bond yields shot up to five-year highs this week but remain well below those in the euro zone and United States.

REUTERS SD HT1932

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