The European Central Bank will face pressure on Thursday to say whether Europe-wide stress tests on banks will be tough enough to convince markets of their worth but is likely to offer little beyond soothing words.

With the ECB pausing for breath after taking extraordinary action to respond to the euro zone debt crisis, all 76 economists recently polled by Reuters expected the ECB to keep interest rates at their record low of 1.0 percent.

The ECB's policy making Governing Council began meeting shortly after 0700 GMT (3 a.m. EDT), a spokesman for the central bank said.

The ECB's news conference is set to focus on the high-profile stress tests being carried out on a sizable chunk of Europe's banks. The health checks go to the root of the woes dogging the euro zone's financial sector.

Throughout the crisis the central bank has sought to address worries by offering banks extra cash. Market players will look for guidance on whether the ECB plans to extend its liquidity support beyond the current end-date of mid-October.

They will also want the central bank to spell out more details of the government bond purchase programme it began in May to contain Greece's and the euro zone's debt crisis.

ECB President Jean-Claude Trichet is, like last month, likely to give little away on the central bank's plans for either of the measures.

I think there will just be a sense of relief that the euro has stopped collapsing and the banking sector hasn't fallen over, said Societe Generale economist James Nixon.

I think rate hikes are so are off the horizon it's not really worth talking about, he said.

Prior to last month's meeting the euro had fallen 17 percent in six months on a trade-weighted basis -- its most dramatic drop on record -- on fears the euro zone debt crisis could force troubled members out of the single currency.

Annual inflation in the euro zone was lower than expected at 1.4 percent in June, data released last week showed, pointing to subdued prices pressures despite an improving economy. Economic growth was 0.2 percent quarter-on-quarter.

RBS economist Nick Matthews expected the ECB to stick to its view in June that price developments should remain moderate over the policy-relevant medium-term horizon. I don't see that changing, Matthews said.

STRESSFUL TIMES

Markets will principally be looking for anything the ECB can say on the progress of the bank stress tests, which European Union bank regulators are conducting in the hope of restoring confidence in markets worried about ballooning public debt.

Markets are so far unconvinced the tests, whose results are due to be published on July 23, will be tough enough and Trichet will be pressed to offer some insight into their likely outcome.

Maybe Trichet will try to soothe market fears and suggest that taken together the market system is robust and well placed to pass the stress tests, said Matthews at RBS.

But I think the markets will be concerned about how many of the smaller banks may not be in a good position when we know the results of the stress tests, he said.

Most analysts agree that concerns are limited over large, listed, cross-border banks but that the focus will be on smaller, unlisted public-sector lenders, particularly Germany's landesbanks and Spain's cajas.

The stress test includes scenarios on possible writedowns of euro zone sovereign bond holdings, a politically loaded issue because those assumptions run counter to European policymakers' stance that neither Greece nor others will default.

Trichet said on Sunday the tests would be an important element in restoring market confidence. They could also trigger a return in risk appetite if lenders perform well.

LIQUIDITY MEASURES

The ECB is likely to take comfort from banks' apparent trouble-free repayment of 442 billion euros in emergency loans last week -- an obligation they met with only modest demand for funds from the central bank aimed at smoothing the process.

We think the ECB will be feeling somewhat relieved that the 12-month tender rolled so successfully last week, said Societe Generale's Nixon. In that sense, I think that the ECB have emerged with their exit strategy intact.

A fresh operation on Tuesday gave further evidence that banks are taking the expiry of last year's record ECB one-year loans in their stride.

Nixon expected the ECB to wait a while before announcing whether it will keep its ultra-easy lending in place beyond the current mid-October end-date.

There is no reason for them to offer any new insights, or new initiatives on that line.

It is also expected to wait until later in the month to lay out new rules on haircuts charged on corporate debt used by banks as collateral for ECB loans.

Trichet said the ECB would detail the changes this month back in April, but a central bank source with knowledge of the plans told Reuters that it would wait until its mid-month meeting to announce the plans.

(Editing by Ron Askew)

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