The European Central Bank kept euro zone interest rates on hold as expected on Thursday leaving markets focused on whether Jean-Claude Trichet will flag a June hike by declaring the bank is in a state of strong vigilance.

The bank left rates at 1.25 percent at its monthly meeting, having raised them in April to end two years of crisis-induced record low interest rates.

Almost all economists in run up to the meeting had expected the decision. The euro and Bund futures were little changed afterwards.

It leaves attention firmly focused on whether or not the bank tees up its next rate rise for June, or supports the slim majority of observers who see it waiting until July.

We expect Jean-Claude Trichet to use the term 'strong vigilance' which would signal that they will raise rates in June, said Daiwa economist Chris Scicluna, citing recent strong inflation and economic activity data in the currency bloc.

The ECB's post-meeting news conference begins at 1230 GMT.

In the past, the ECB regularly used the phrase strong vigilance or alternatively heightened alertness to signal a hike was only a month away.

With inflation continuing to accelerate in the euro zone economists expect last month's 25 basis point rate hike to be the first in a run of increases.

If a June hike is on the cards, it would be the fastest start to a rate rise cycle in the ECB's history. In 1999 and 2005, the beginning of the last spell of tightening, it waited three months before a implementing a second increase.

We are looking for the key code word 'strong vigilance' and for a statement that risks to price stability are still very much on the upside, said Societe Generale economist James Nixon.

Data released since the April meeting has shown euro zone inflation accelerating to 2.8 percent in April. The ECB aims to keep it just below 2 percent over the medium term.

The meeting in Helsinki comes just two days after Portugal announced it had reached preliminary agreement with the EU, IMF and the ECB for a three-year package of support, including help for Lisbon's banks.

That, and speculation about a possible Greek debt restructuring, is unlikely to blow the ECB off course, however, as it exits the loose monetary policy it employed from October 2008 in response to the global financial crisis.

If anything the Portuguese package is a positive development for the market in the sense that that removes another source of uncertainty for the time being, said Nixon. The sense is that the sovereign debt crisis is abating again and that the ECB can continue to respond to inflation.

NEW BOY, OLD STANCE

Thursday's meeting was the first attended by incoming Bundesbank chief Jens Weidmann, who on Monday stuck to the hawkish policy stance of his predecessor, Axel Weber, by saying monetary policy must be normalized.

In his first comments on monetary policy, Weidmann said it was a question not of 'if' but rather 'when'.

ECB policymakers have been at pains to stress the separation of their standard policy tools -- interest rates -- from non-standard measures, including the unlimited liquidity operations they use to help banks in the periphery that are frozen out of interbank markets.

The ECB said in March it would carry on providing unlimited funding for banks at its three-month operations through to the end of June and would keep full allotment at its weekly and one-month operations, until at least July 12.

With the liquidity taps still on, the periphery's woes are unlikely to stop the ECB flagging a further rate rise.

The stronger-than-expected inflation April reading, together with a survey showing factories in the euro zone ramped up production in April, have led a number of economists to lean toward a June hike.

Nomura's Jens Sondergaard saw only a 30 percent probability of a June rate rise.

If they sound the strong vigilance alarm tomorrow and hike in June, they are implicitly sending a signal to the market that they are keen to hike ... and that will push up market expectations even further, and will push up the euro, he said.

The euro has raced higher since the April meeting, closing in on $1.50 as the ECB focuses on tackling inflation while the Federal Reserve has signaled it is in no hurry to scale back its support for the U.S. economy.

(Writing by Paul Carrel, editing by Mike Peacock)

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