ECB's Trichet sees signs downturn is stabilising

FRANKFURT (Reuters) - European Central Bank President Jean-Claude Trichet said the euro-zone economy was showing tentative signs of stabilising at a very low level, after the ECB cut interest rates to a new record low on Thursday.

The ECB cut another 25 basis points from its benchmark refinancing rate, taking it to 1 percent, and Trichet said inflationary pressures had diminished in what remained a severe economic downturn.

"The latest economic data and survey suggest tentative signs of a stabilisation at very low levels after a first quarter which was significantly weaker than expected," Trichet told the news conference after the bank's decision.

"The world economy including the euro area is still undergoing a severe downturn with the prospect of both external and domestic demand remaining very weak over 2009 before gradually recovering in the course of 2010."

He also said inflation expectations remain firmly anchored and were consistent with keeping inflation in line with the bank's target of price growth at or just below 2 percent.

"The outcome of the monetary analysis indicates that inflationary pressures have diminished," he said.

Euro zone inflation is at a record low of 0.6 percent and although some economic data are showing signs of stabilisation, the European Commission this week forecast the euro zone's economy would shrink 4.0 percent this year.

The ECB has cut rates from 4.25 percent since last October.

(Reporting by Patrick Graham; editing by Chris Pizzey)