The European Central Bank kept interest rates on hold at 1.0 percent on Thursday and investors are now braced for signs that it will soon start weaning banks off cheap and abundant liquidity.

All 78 economists polled by Reuters last week had expected the ECB to leave interest rates at a record low this month, with no change expected until late 2010.

Rates on hold was a given, said Unicredit economist Marco Valli. We need to look for the news conference to have something more interesting.

ECB President Jean-Claude Trichet will hold a news conference at 1330 GMT. The euro was little changed after the decision at around $1.4877.

(For graphic of global interest rates see http://graphics.thomsonreuters.com/RNGS/ECO/RATES.jpg )

The U.S. Federal Reserve made no change to policy settings on Wednesday despite growing confidence of a recovery. The Bank of England also left its rates untouched, but said it would expand its quantitative easing program by 25 billion pounds.

The vast majority of analysts expect the ECB to start withdrawing generous liquidity supplies before it raises rates, and futures pricing suggests market rates rising in early 2010.

(For graphic of ECB rate forecasts against market rate expectations see

http://graphics.thomsonreuters.com/109/EZ_ECBPOL1009.gif )

Many of the emergency measures brought in to counter the financial crisis run only beyond the end of 2009, meaning the ECB will have to decide soon whether to extend them or not.

Germany's Axel Weber fanned speculation that the central bank may reveal at least part of its hand on Thursday when he said last week that the policy of unlimited funds at main liquidity operations should be kept on, while very long-term liquidity operations could go sooner.

Weber is so far the only policymaker to announce his preference for how the ECB should exit its support measures, and even he said it was premature to set a concrete time-frame.

Still, analysts said the ECB could make it clear that the last scheduled one-year liquidity operation, due on December 16, will indeed be the last. It could also decide to bump up the interest rate at the operation, adding a margin over 1 percent.

They could take the November meeting as an opportunity to say they will start depleting the non-conventional measures, RBS economist Jacques Cailloux said. Not renewing (the 12-month operation) is an exit.

MAY HOLD OFF

Others expect the ECB to wait with announcements about the 12-month operation and its wider exit plans until December, when it will have updated staff economic projections and the first forecasts for 2011, the crucial period for today's monetary policy decisions given the long lead time.

Trichet is expected to adopt a similar tone at his news conference as last month, when he said caution was needed on the economic outlook, with price pressures subdued and risks to inflation balanced.

I expect him to say the rates remain appropriate -- once they drop that the markets will start pricing in rate moves and they cannot afford that right now, Unicredit's Valli said.

Inflation remained negative in October, at -0.1 percent, but is expected to turn positive again in November given a 15 percent rise in oil prices in the last month.

Growth data over the last month have been encouraging, with euro-zone manufacturing activity growing in October for the first time in 17 months and its service sector expanding at its fastest in nearly two years. All this has boosted expectations that the 16-nation bloc returned to growth in the third quarter.

The European Commission on Tuesday revised up its growth forecast for next year to 0.7 percent and sees an acceleration to 1.5 percent in 2011, after a 4.0 percent fall this year.

The IMF sees 0.3 percent growth in 2010.

One threat to that is the strength of the euro, which has risen 16 percent against the dollar in the last eight months and about 3.5 percent using the ECB's preferred trade-weighted measure.

Economists said those gains could give the ECB another reason to hold off with exit hints, especially without any similar indication from the Fed, as this would put upward pressure on the euro.

Economists are also keen to gauge the ECB's assessment of credit conditions, after a pick-up in new lending on a monthly basis and an easing in tightening their credit standards in Q3.

It looks like we are approaching a turnaround in the credit cycle, Unicredit's Valli said. However, the ECB is likely to remain very cautious until business lending picks up.

(Editing by Mike Peacock)

Germany Inflation European central bank Quantitative easing