Euro-Zone inflation fell to its lowest level for almost 18 months in November, according to preliminary figures released yesterday, raising hopes of further interest rate cuts by the European Central Bank early next year.

Eurostat, the European Union's statistical agency, said consumer prices in the 12-nation bloc rose by an estimated 2.1 per cent, against 2.4 per cent in October.

The lower-than-expected rise means the annual inflation rate is now close to the ECB's "price stability" target of 2 per cent. "The ECB's threshold is finally in sight," said Mr Jacques Cailloux of Barclays Capital. "We expect it to be reached in December." Headline inflation has been above the 2 per cent target since mid-2000.

Mr Gwyn Hacche, European economist at HSBC in London, said he had assigned a 30 per cent chance of a cut at the next ECB meeting, but the latest inflation data could raise that probability.

However, economists said the data, which helped support the single currency against the US dollar, were unlikely to affect the central bank's thinking on interest rates when its governing council meets again next week.

"Consumer price inflation is surprising on the downside," said Mr Rainer Guntermann of Dresdner Kleinwort Wasserstein. "But core inflation which excludes food and energy prices remains strong, although it is only a matter of time before it too falls."

Most economists expect the bank to maintain its "wait and see" stance until the first quarter of next year, when lower inflation combined with slowing growth will provide scope for additional rate cuts.

The rate of consumer price increases "is likely to fall below 1 per cent in the second half of next year", said Mr Michael Schubert of Commerzbank. With growth at just above 1 per cent in 2002, "we expect the ECB to lower rates again over coming months by 50 basis points", he added.

The ECB cut rates by half a point to 3.25 per cent in early November.

Eurostat's preliminary or "flash" estimate of inflation is based on information that represents more than half of the total data used to calculate the euro-zone consumer price index.

The preliminary figure, produced about three weeks before the complete data, generally captures the inflation trend in the euro zone accurately, said economists.