The European Central Bank kept euro zone interest rates at 1.0 percent on Thursday, and markets expect it to hold them at the all-time low for much of next year to help repair the region's economy.

The decision had been seen as a near certainty. Eighty-one of 82 economists polled by Reuters before the meeting, held this month in Luxembourg, had predicted no change from the bank.

This was entirely expected, said UBS economist Sunil Kapadia. We are not expecting any more additional non-standard measures. With the data in the market improving there is no compelling reason to do more right now.

Markets were little changed after the decision. Attention now switches to a 8:30 a.m. EDT news conference with ECB President Jean-Claude Trichet. Economists think he will probably repeat that rates are appropriate at the current record low and that the bank sees faint signs of economic recovery.

Earlier Sweden's central bank shocked markets by cutting its interest rates by a further 25 basis points to 0.25 percent. (for story please click)

But the ECB is likely to refrain from any new policy steps so that it can take stock of its unconventional measures to tackle the euro zone recession -- last week's injection of almost half a trillion euros of ultra-cheap funding into money markets, and the soon-to-be-launched program to buy 60 billion euros' worth of mortgage and public debt-backed bonds.

Markets hope Trichet will fill in some of the missing details of its unorthodox plan to buy bonds, a policy designed to ease longer-term interest rates.

What we still want to know is when exactly the ECB is going to buy them, how much they are going to buy in each product, from whom and at what price, said Ted Packmohr, a covered bond analyst at Dresdner Kleinwort.

There is still also the question (of) which non-euro zone banks will be able to participate via their European subsidiaries.

Analysts will scour Trichet's comments on the ECB's latest view of the economic situation and the likely timing of a credible recovery. Trichet is likely to be asked about falling consumer prices in the euro zone, whether the record injection of funding last week has had the desire impact, and if the ECB is planning how to reverse its crisis measures when the economy starts recovering.

MACRO UNDER THE MICROSCOPE

Data earlier showed unemployment hit a 10-year peak in the euro zone in May. U.S. jobless figures out later are expected to reach their highest level in 26 years, dimming any prospect of a quick recovery from recession.

Despite the rising euro zone unemployment, tightening credit conditions and the risk of deflation, the latest economic data suggest the worst of the economic tempest may now have passed.

However, other signals point to a puny recovery at best. The supply of credit to firms and consumers has continued to tighten, euro zone prices fell in June for the first time since the introduction of the euro and GDP slumped 4.8 percent year-on-year in the first three months of the year.

Analysts expect Trichet to stick to the view that there are tentative signs of stabilization in the economy and continue to play down the threat of deflation.

At the same time recent comments suggest key policymakers are becoming increasingly concerned about the credit situation.

Despite successfully pumping 442 billion euros into euro money markets last week the signs are not yet encouraging. Data on Wednesday showed that institutions are hoarding large amounts of cash at present, rather that lending it out as hoped.

Deutsche Bank economist Mark Wall noted comments on the problem by two ECB policymakers, Executive Board member Jose Manuel Gonzalez-Paramo and Bundesbank President Axel Weber.

Gonzalez-Paramo raised it and Axel Weber was clearly threatening last week when he said if banks don't pass on this cheaper funding then they will have to be bypassed, said Wall. So the question is: at what point does the ECB conclude that the banking sector is dysfunctional? And at what point do they decide that they need to switch strategy?

(Reporting by Marc Jones; editing by David Stamp)

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