European Central Bank President Jean-Claude Trichet signaled on Thursday that euro zone interest rates are unlikely to rise next month but left the door firmly open for an increase in July.

Trichet did not use the phrase strong vigilance at a news conference which followed the ECB's decision to leave rates at 1.25 percent, after raising them in April to end two years of crisis-induced loose policy.

In the past, the ECB regularly used the phrase to signal a hike was only a month away and Trichet did so in March, a month before the central bank raised rates from the record low 1 percent at which they had been held since May 2009.

We will continue to monitor very closely all developments with respect to upside risks to price stability, Trichet told the news conference.

However, he said the ECB could move rates any time it saw fit. We are never precommitted, he said, adding that the ECB's Governing Council had been unanimous in Thursday's decision to leave rates unchanged.

Ahead of the meeting, analysts said a repeat of the language Trichet used in April, when he said the ECB would monitor very closely inflation risks, would signal a July move.

The euro fell to a session low of $1.4620 from around $1.4815 in response to Trichet's comments, while Bund futures rallied to stand 39 ticks up on the day.

I think the only thing we know now is the ECB will move beyond June, said Jens Sondergaard, economist at Nomura.

I think the speed and the extent of the tightening cycle is very dependent on the data flow in the weeks ahead, he added. For now we continue to think the next hike will occur in July.

Schroders economist Azad Zangana struck a similar tone:

It was slightly more dovish than we really expected, the absence of codewords like vigilance or alertness has pushed back expectations for the next hike beyond June to July or possibly even August, he said.

A Reuters poll last Thursday showed a majority of 76 economists expected the next hike in July although some tipped June.

Almost all economists had expected the ECB to leave rates on hold this month. The Bank of England did the same earlier on Thursday but, facing a weak economy, is expected to leave its benchmark rate at a record low 0.5 percent for months yet.

The ECB, on a tightening path, also contrasts with the U.S. Federal Reserve which has signaled it is in no hurry to scale back its support for the U.S. economy.

INFLATION STILL CLIMBING

Data released since the April meeting has shown euro zone inflation accelerated to 2.8 percent and economists expect to see robust euro zone first quarter growth figures when they are published next week.

The ECB aims to keep inflation just below 2 percent over the medium term and analysts expect last month's 25 basis point rate hike to be the first in a run of increases.

We continue to see upward pressure on overall inflation, mainly owing to energy and commodity prices, said Trichet, whose term as ECB president runs out at the end of October.

Thursday's meeting in Helsinki came after Portugal announced it had reached a three-year bailout deal with the European Union, International Monetary Fund and the ECB.

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.

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.

Asked whether the fragility of the euro zone periphery was a factor in the ECB's rates decision, Trichet said: Absolutely not. Our responsibility is for the price stability of the euro area as a whole.

Trichet said a bailout plan Portugal signed up to on Thursday contains the necessary elements to bring about a sustainable stabilization of the Portuguese economy ... and will thereby contribute to restoring confidence.

He dismissed speculation about a possible restructuring of Greek debt, telling the news conference: We consider that it is not in the cards.

However, he sharpened his warning to debt-strained euro zone strugglers, saying there was a risk some countries may not meet targets for putting their public finances in order.

It seems they have decided to step up their approach (to pressuring governments), said Zangana at Schroders.

Potentially he is delivering a veiled threat interest rates could continue to rise and that these measures have to be done while they are still low.

(Additional reporting by Marc Jones and Paul Carrel)

(Writing by Mike Peacock; Editing by Catherine Evans)

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