European Central Bank holds interest rates at 1%

The European Central Bank held interest rates at a record low of 1 percent today and is expected to resist German pressure to flag an exit from its crisis-fighting mode as the euro zone recovery looks increasingly shaky and concerns grow about Spain.

Germany's powerful Bundesbank has led a push by central bankers from the euro zone's core for the ECB to begin preparing an exit from crisis measures that have seen it loosen the rules for tapping ECB funding operations.

Attention will now shift to ECB President Mario Draghi's 1230 GMT news conference for any indications on whether the central bank is bending to the German-led pressure - an unlikely scenario as the euro zone economy remains in a fragile state.

Draghi will be grilled on how worried he is about the possibility of Spain having to request a bailout after the rise in its refinancing costs. Madrid is battling to convince European partners and debt markets it can rein in its budget deficit in the face of growing complaints from the public.

The ECB has pumped over 1 trillion euros into the financial system with twin 3-year funding operations, or LTROs, to head off a credit crunch that late last year risked exacerbating the euro zone crisis and jeopardising the currency project.

Euro zone inflation eased to 2.6 percent in March - above the ECB target of just below 2 percent and higher than expected - but the renewed worries about Spain mean the ECB cannot afford to signal a rate rise or an exit from the funding measures.

The ECB believes it has done as much as it can to fight the crisis and Draghi has put the onus firmly on governments to act. They responded last week by agreeing to raise their financial firewall to 700 billion euros ($930 billion).

The ECB is nonetheless concerned that its generous funding operations have made banks too dependent, and wants to wean banks off such loans.