Analysts had anticipated the ECB governing council's decision to lower its benchmark interest rate by a half percentage point from the previous level of 2.50 per cent but Bank of America senior economist Holger Schmieding told AFP it was likely 'the ECB had a very difficult time coming to this decision.'

ECB president Jean-Claude Trichet had suggested in December that the bank was set to pause in its series of rate cuts, preferring to wait and see what impact they would have before taking any further action.

However, an unrelenting run of weaker economic data - especially in Germany, the eurozone powerhouse - raised hopes the ECB would lower interest rates again to tackle what many fear will be the worst slump since the 1930s Great Depression.

Many within the eurozone, politicians in particular, have called on the ECB to go lower still into what some analysts have called 'unexplored territory' where interest rates are effectively zero or near it, as several other major central banks have done.

The US Federal Reserve and the Bank of Japan have brought their main interest rates to virtually zero, while the Bank of England cut its last week to 1.50 per cent, the lowest level in its 315-year history.

Mr Schmeiding said that 'we think Trichet will not say anything about a further cut coming near term' when he gives a press conference later in the day.

However, he said upcoming economic data 'will be so bad that the ECB will be forced to go from 2 per cent to a new historic low of 1.5 per cent in March.'

The UniCredit Group expects the ECB to take its benchmark rate down to 1 per cent this year.

Capital Economics economist Ben May said that 'given the recent appalling news on the eurozone economy, further interest rate reductions appear inevitable.'

The ECB is faced with a long series of bleak economic indicators while eurozone inflation, its main focus, has slipped steadily in recent months from record highs, dropping to 1.6 per cent in December, below its target of just under 2 per cent.

Industrial output plunged by 1.6 per cent in November from the previous month, bringing the slump over a year to 7.7 per cent - the biggest drop since such records began in 1990.

Another worry for ECB policymakers was the downgrade of Greece's sovereign debt by ratings agency Standard and Poor's, which has warned Ireland, Portugal and Spain that their public finances were under scrutiny as well.

Greece now has the lowest rating of any eurozone member and will have to pay more for funds on crucial bond markets, which could become saturated as countries seek huge amounts of cash for economic stimulus packages.

Those will be needed to boost growth and counter unemployment, which edged up in November to 7.8 per cent, the highest level in nearly two years.

The eurozone entered its first recession last year and with almost all economic indicators pointing south, it appears set to remain in a slump for most of 2009. -- AFP