Interest rates may rise later this week in an attempt by the European Central Bank to control inflation across the euro zone.

The ECB governing council meets in Frankfurt on Thursday and some analysts are now predicting a rate rise.

The decision may not be taken for another two weeks, however.

The governing council meets again with a scheduled press conference in Madrid on March 30th.

Most ECB watchers believe the president, Mr Wim Duisenberg, would prefer to have the opportunity to explain a decision to raise rates at a press conference.

Spanish executive board member Mr Padoa Schioppa has, however, pointed out that a press conference is not necessary to change monetary policy. The markets were also boosted yesterday by comments from Mr Duisenberg in an interview with French newspaper Les Echos when he stressed that "stability of the currency is more important than any given parity level". He added that the euro had stabilised in recent weeks, "even if it did so at a weaker level than we might have hoped".

Fundamentals in the euro area were strong and would eventually make a difference, which was why ECB officials kept repeating that the euro had a strong growth potential, he said.

Analysts said Mr Duisenberg's remarks have heightened speculation that the ECB would raise interest rates on Thursday, which could further assist the euro.

According to Dr Dan McLaughlin, chief economist at ABN-Amro, it is clear that rates are set to rise.

Irish inflation data will be released today and are likely to show that price increases are running at 4 per cent or higher as oil prices continue to pump up the consumer price index.

Speculation that interest rates will rise lifted the euro early yesterday along with the resounding re-election of Mr Jose-Maria Aznar as Prime Minister of Spain.

The euro closed at $0.9673 from $0.9647 on Friday although it had traded at more than $0.97 earlier in the session, before a late equity market recovery.

The sell-off in equity markets, which began in the Far East before spreading to Europe, led to a sell-off in the opening minutes in the US which also affected the dollar. The US currency has been the main beneficiary of rising global equity markets.

However, US markets quickly turned, with bargain hunters out in force.

At the same time sterling was hit by news that industry input prices surged to a 20-year high in Britain last month due to the strongest crude oil price rise on record but factory gate prices remained subdued.

Economists said there was little immediate implication for British interest rates, however, which were left steady by the Bank of England last week, because there was little sign that rising input prices were feeding through into the wider economy.