European Interest Rate Drops To 1.25%

The European Central Bank cut its benchmark interest rate by a quarter of a percentage point to 1.25 percent Thursday - a record low - to help the 16 countries that share the euro combat the economic downturn.

The decision came as members of the Group of 20 leaders of rich and developing countries meet in London with the state of the global economy - and how to get it back on track - dominating talks.

Markets will be watching comments from ECB President Jean-Claude Trichet at a press conference later in the day, when he will explain the bank's decision. Since most analysts predict the bank is not likely to cut interest rates further, the focus will be on any indications that the ECB could take alternative measures to give the economy another push.

After a half percentage point rate cut at the last rate-setting meeting on March 5, Trichet had indicated that another reduction was possible and that the bank was looking at new measures to breathe life into the euro zone, which accounts for more than 15 percent of the world's gross domestic product.

Trichet's comment that the ECB's governing council was "discussing and studying possible new nonstandard measures" was taken as a clear hint that the central bank was considering buying financial assets from the banks in order to give them more ready money and free lending markets.