Third quarter euro zone economic data has been surprisingly strong so far but the European Central Bank still expects the bloc's economic recovery to be moderate and uneven, President Jean-Claude Trichet said on Thursday.

The available economic data and survey-based indicators suggest a strengthening in the economic activity in the second quarter of 2010 and the available data for the third quarter are better than expected, Trichet told a news conference after the ECB kept its main interest rate on hold at 1.0 percent.

Looking further ahead ... we continue to expect the euro area economy to grow at a moderate and still uneven pace in an environment of uncertainty, he said.

The euro zone economy grew by just 0.2 percent in the first quarter of the year on a quarterly basis. Second quarter figures are due next week and are expected to show stronger growth after a string of upbeat forward-looking data in recent weeks.

With inflation in the 16-country euro zone undershooting and the region's post-crisis economic recovery still in a fledgling phase, the decision to keep rates at a record low for the 15th month running was widely expected.

The decision to keep rates on hold was an obvious one, said J.P. Morgan economist David Mackie. We don't have a rate rise in our forecast horizon, and our horizon goes to the end of 2011.

LIQUIDITY

ECB watchers were hoping Trichet might give an early hint on whether banks would continue to have access to unlimited ECB cash for the rest of the year, past the current deadline of October.

But he said only that the bank would make a decision next month on any further moves to unwind the extra liquidity it has been pumping into money markets and would do what is needed.

Money market rates are a vital part of the ECB's current monetary policy strategy. By pumping in extra cash for banks during the crisis, bank-to-bank charges fell well below the 1 percent mark suggested by the ECB's benchmark rate.

Now they are trending up and analysts point out that that represents an effective interest rate rise.

Asked about the steady rise in three-month interbank rates Trichet said: I do not welcome it particularly, it's part of the normalization of the situation.

Analysts say better-than-expected bank stress tests results have already sparked improvement on bank-to-bank lending markets, with higher turnover in short-dated loans, in a hopeful sign that banks can cope with less ECB funding.

ECONOMIC OPTIMISM?

In contrast to U.S. indicators, which suggest post-recession recovery there may be flagging, data in the 16-nation euro zone has continued to outperform since the ECB's July meeting.

That divergence has opened a gulf between the ECB and the Federal Reserve, which has publicly toyed with a return to stronger stimulus. The Bank of England has done the same. It too kept rates on hold on Thursday.

Euro zone economic morale hit a 28-month high in July, European Commission data showed last week, while consumer confidence is now at the highest level in more than two years.

Manufacturing growth, the main driver behind the recovery, also accelerated thanks to a strongly-performing Germany which on Thursday reported a 3.2 percent leap in manufacturing orders in June.

However, economists say growth may falter when government spending cuts hits. Ireland's central bank warned last week that euro zone growth was expected to slow in H2 and risks to the outlook were on the downside.

Another signal that the ECB is confident about the outlook is that it has slowed its government bond buying programme to a near halt, leading many to believe the purchases will soon be phased-out.

(Reporting by Marc Jones; Editing by Mike Peacock)

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