Oct. 8 (Bloomberg) -- European Central Bank President Jean- Claude Trichet signaled the bank will keep interest rates at a record low to stimulate growth as the euro’s appreciation threatens to undermine the economic recovery.

“The current rates remain appropriate,” Trichet said at a press conference in Venice after ECB policy makers left the benchmark lending rate at 1 percent. “Excess volatility and disorderly movements in exchange rates have adverse implications for economic and financial stability,” he said, repeating the Group of Seven’s mantra on currencies.

The euro has surged 18 percent against the greenback since February, eroding export returns just as Europe emerges from its worst recession since World War II. Trichet said the economy will recover “at a gradual pace” and reiterated that the U.S. authorities’ preference for a strong dollar is “extremely important in the present circumstances.”

The ECB “continued to signal a cautious stance about recent signs of recovery, implying that it would not be raising interest rates any time soon,” said Nick Kounis, an economist at Fortis Bank Nederland NV in Amsterdam. At the same time, “Trichet’s comments suggest that they’re not really alarmed about the recent appreciation of the euro. If they were really worried you’d expect him to step up the language.”

The euro rose to $1.4769 at 5 p.m. in Frankfurt from $1.4757 before Trichet spoke.

Expecting More

“The market was expecting a more aggressive stance on the euro’s strength and instead Trichet comes up with a line about not liking excessive volatility,” said Carl Hammer, a senior global analyst at SEB in Stockholm. He “didn’t mention the actual level of the euro” and that opens the door “for a bit more euro strength,” he said.

The economy of the 16 euro nations probably emerged from recession in the third quarter as government stimulus measures, such as “cash-for-clunkers” programs, boosted consumer spending and a global recovery began to rekindle export demand. The ECB has also flooded the banking system with cheap cash in the hope they will lend it on to companies and households.

Confidence in the economic outlook rose to a 12-month high in September and investors grew more optimistic. Europe’s Dow Jones Stoxx 600 has gained 53 percent in the past seven months.

While demand for the ECB’s loans is waning, policy makers remain wary of withdrawing stimulus too soon. The bank last month forecast the economy will grow just 0.2 percent in 2010 after contracting 4.1 percent this year.

Uneven, Subdued

Rising unemployment and the expiry of government rescue packages may damp growth next year. Trichet said the region’s recovery is likely to be “uneven” and inflation will remain “subdued” in the medium term.

A stronger euro won’t help. The dollar has weakened against most major currencies as the global economic rebound boosts demand for higher-yielding assets.

“At current levels, the situation is becoming very difficult for all industrial companies that have their costs in euros,” Airbus SAS Chief Operating Officer Fabrice Bregier said in Paris today. “We can only appeal to monetary authorities to ensure currency stability.”

The world’s largest maker of commercial aircraft said yesterday that orders dropped 80 percent in the nine months through September from the same period a year earlier.

Trichet’s stance on the euro’s gains “hardened just a little bit,” said David Powell, a London-based currency strategist at BofA Merrill Lynch. “He said they would collaborate as appropriate to deal with exchange rates. That’s a very mild way of saying they would intervene if needed. But it wasn’t enough to derail the euro-dollar’s move upward as risk appetite improves.”

While Trichet said global policy makers will “coordinate as appropriate” on currency matters, he also said: “You will never have any comment from me on the intervention concept. If we have anything to communicate, we will do it.”

To contact the reporters on this story: Gabi Thesing in Frankfurt at gthesing@bloomberg.net; Jana Randow in Frankfurt at jrandow@bloomberg.net.

Last Updated: October 8, 2009 11:16 EDT