Oct. 5 (Bloomberg) -- The franc fell versus the euro for a third day after the European Central Bank raised its main lending rate, widening the interest rate gap between the euro countries and Switzerland.

The ECB today raised its benchmark lending rate to 3.25 percent from 3 percent, the fifth increase in 10 months, to keep inflation in check after economic growth accelerated. The Swiss central bank has raised its main rate four times in a year, and directorate member Philipp Hildebrand today suggested the bank may not lift rates as much as during previous recoveries.

``Inflationary pressures seem much lower in the current recovery than in similar situations in previous years,'' Hildebrand said in Zurich today. ``The uncertainty about the potential growth rate and the level of the neutral interest rate is rising from a monetary policy point of view.''

The franc fell as low as 1.5915 after Hildebrand's comments, extending earlier losses. It traded at 1.5906 by 3:03 p.m. in Zurich, from 1.5878 yesterday. The currency dropped to 1.2533 against the dollar, from 1.2515.

The Swiss central bank last month raised its main rate to 1.75 percent. Evidence the Swiss economy has peaked prompted investors to scale back bets on further interest rate increases by the SNB, futures trading shows. The implied rate on the three-month Swiss franc Libor contract for March settlement has dropped to 2.15 percent as of 1:23 p.m. today in Zurich, from as high as 2.37 percent on May 12.

Swiss leading economic indicators last month fell to the lowest since April and consumers grew more pessimistic in August. The KOF economic institute today said growth will slow next year to 2.1 percent from 2.9 percent in 2006.

September inflation dropped to 0.8 percent from a year earlier suggesting the central bank has little reason to accelerate rate increases.

Swiss government bonds rose. The yield on the 2.5 percent bond due March 2016 fell 1 basis point to 2.35 percent. The price of the 2.5 percent bond gained 0.14, or 1.4 francs per 1,000-franc face amount ($798), to 101.28, according to prices compiled by Bloomberg.

To contact the reporter of this story: Dorothee Enskog in Zurich at denskog@bloomberg.net

Last Updated: October 5, 2006 09:06 EDT