Nov. 5 (Bloomberg) -- European Central Bank President Jean- Claude Trichet said officials will withdraw some of the emergency liquidity measures introduced to fight the worst recession since World War II.

“Not all our liquidity measures will be needed to the same extent as in the past” as the economy recovers, Trichet said at a press conference in Frankfurt today after the ECB left its benchmark interest rate at a record-low 1 percent. Extraordinary liquidity measures will be “phased out in a timely and gradual fashion” in order to “counter effectively any threat to price stability over the medium to longer term,” he said.

Central banks around the world are starting to wind down some of the measures introduced to stave off a second Great Depression. The Bank of England said today it will slow the pace of bond purchases and the Federal Reserve yesterday outlined the conditions needed for it to raise interest rates.

Trichet indicated that the auction of unlimited 12 month- loans, one of the ECB’s flagship policies this year, won’t be continued after next month’s operation. “The market is not expecting that we will prolong” it, he said. “And I will say nothing to dispel the sentiment of the market.”

‘First Step’

“The phasing out of these operations is likely to be the first step in the ECB’s exit strategy,” said Colin Ellis, an economist at Daiwa Securities in London. “We think that the ECB will continue to be cautious and leave interest rates on hold for an extended period, and instead start withdrawing its monetary stimulus by winding down its liquidity operations.”

The euro rose as much as 0.4 percent to $1.4917 after Trichet’s comments. The yield on the benchmark 10-year German government bond rose 4 basis points to 3.36 percent.

The ECB will offer banks unlimited funds for a year for the third time on Dec. 15. Banks drew 75 billion euros ($111 billion) at the last offering in September, down from 442 billion euros in the first tender in June. Trichet declined to say whether the ECB will raise the interest rate on the December loans. It charged banks 1 percent in the previous tenders.

The 16-nation euro area probably returned to growth in the third quarter. The region’s service and manufacturing industries grew for a third month in October and business confidence rose to the highest level in more than a year.

“The latest information continues to signal an improvement of economic activity the second half of the year,” Trichet said. “Euro-area GDP growth is expected to recover at a gradual pace in 2010” and the risks to this outlook are “balanced,” he added.

The economy will expand 0.7 percent in 2010, the European Commission said Nov. 3, revising its forecast from a 0.1 percent contraction.

Trichet, who meets finance ministers and central bankers from the Group of 20 nations in St. Andrews, Scotland, this weekend, also said that a “strong dollar” is “in the interest” of the U.S.

To contact the reporter on this story: Jana Randow in Frankfurt at jrandow@bloomberg.net; Frances Robinson in Frankfurt at frobinson6@bloomberg.net

Last Updated: November 5, 2009 09:55 EST