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FRANKFURT, May 4: The European Central Bank stepped up its anti-inflationary warnings on Thursday and strongly signalled that investors are right to expect another interest rate increase in June.

The ECB kept its official rate at 2.5 percent as expected, but ECB President Jean-Claude Trichet said afterwards that some of the risks to price stability have increased due to a resurgence in high oil prices, which require ''particular vigilance''.

''The Governing Council will exercise strong vigilance in order to ensure that risks to price stability over the medium term do not materialise,'' Trichet told a news conference.

Further credit tightening is warranted if the euro zone economy continues along its trend path of about 2 percent annual GDP growth, he said several times during the news conference.

Asked whether a June rate rise was to be expected, Trichet said that should not be excluded, and that ''you always got me right'' on rate expectations. He did not explicitly rule out tightening credit by a half percentage point in June, which would mark an acceleration from the 0.25 percentage point moves so far.

European stocks slipped on prospects of higher rates, the euro jumped against the dollar to $1.2664 and 10-year German Bund yield hit its highest level since September 2004.

''Trichet is in a belligerent mood over rates,'' said David Brown, European economist at Bear Stearns in London.

''He has moved from 'monitoring closely' to 'strong vigilance'. He is obviously preparing the ground for a June rate hike,'' said Marco Kramer, analyst at HVB in Munich.

Markets have fully priced in another 0.25 percentage point rise in June, with rates reaching 3.25 percent by the year-end.

Trichet gave little guidance on where rates are headed for the rest of the year, saying this would depend upon the economic data.

The ECB currently forecasts GDP growth around 2.1 percent this year, compared with 1.4 percent in 2005. These projections will be updated in June, which could provide the backdrop for any quickening of its tightening pace.

Pressed on whether the ECB wanted to get rates back to more normal levels, commonly viewed as around 3.5 percent, he said: ''We have no predetermined decision on interest rates. Everything we do is conditional on our analysis.'' But Trichet expressed growing confidence about prospects for the euro zone and a renewed determination to tackle inflation, which reached 2.4 percent in March, well above the ECB's goal of just below 2 percent.

Oil costs have risen about $4 to $72 a barrel since the last ECB meeting. Otherwise most news has been positive for growth. The main euro zone business sentiment indicator hit a five- year high, and Belgium gave a glimpse of first-quarter economic performance when growth reached its fastest pace in 18 months.

Euro zone purchasing managers' data earlier on Thursday showed the service sector growing at its fastest pace for five years, coming on the heels of strong manufacturing data a day earlier.

Sentiment surveys in the major euro zone countries also have pointed to accelerating growth in the 12-nation region.

The ECB president also indicated that the strengthening euro was little hindrance to the rate tightening path, saying the ECB does not respond mechanistically to currency levels.

The common currency has climbed over 3 percent against the dollar in the past month to its highest level in almost a year and to a similar comparative level on a trade-weighted basis. Currency strength effectively tightens financial conditions and hurts export-led growth, making some analysts speculate it could slow the ECB's pace of rate increases later this year.

REUTERS