European Central Bank Hikes Key Interest Rate to 3.5 Percent

FRANKFURT, Germany – The European Central Bank raised its key interest rate a quarter of a percentage point to 3.5 percent on Thursday, but a strong euro suggests the bank could pause its string of rate hikes next year.

The ECB move was the sixth hike since December 2005, when the euro-zone's economy started picking up. The recovery has been broadly sustained, with demand for credit still strong in the 12-nation zone that has more than 313 million people and a combined gross domestic product that accounts for nearly 15 percent of the world's economic output.

Earlier, the Bank of England held its key interest rate steady at 5 percent, a decision that was widely expected after increases in August and November took rates to the current five-year high.

But with the euro hovering around 20-month highs against the U.S. dollar, the ECB may feel pressure to back off future increases for fear of seeing the common currency rise so high it stunts growth in the euro zone.