There is a reasonable chance that European interest rates will be raised today.

Last night's rise by the US Federal Reserve does not necessarily make this more likely but will concentrate the minds of the European Central Bank's executive board at its meeting in Frankfurt.

The US and European economies are at very different stages, as the divergence between the popularity of the dollar and the euro testifies. The US is undergoing its 107th month of continuous expansion, an all-time record, says Dr Dan McLaughlin, chief economist at ABN Amro.

The economy grew at 4 per cent in 1999 and by the fourth quarter was growing at an annualised rate of 5.8 per cent. At the same time, inflation is running at 2.9 per cent or 1.9 per cent if energy prices are excluded.

Up to yesterday, the Federal Reserve had reacted to this phenomenal growth by merely taking back the three-quarters of a point it had trimmed from interest rates as a reaction to the Asian crisis in 1998.

The Fed now believes that growth is so strong it is likely to start feeding into inflation, one reason why it indicated yesterday it would raise rates again and probably as early as next month. This is particularly so with unemployment now down to 4.1 per cent which fuels the fear of higher wage growth.

The Fed does not like to surprise markets and there were few, if any, economists who were not expecting the latest rise. Yesterday's announcement that the Fed feared excess demand growth could foster inflationary imbalances was being interpreted by the market as meaning it could expect a series of rate rises in the coming months.

That, in turn, is likely to be interpreted as underpinning growth and, hence, stockmarket valuations and dollar strength.

Most analysts expect another rise in March to 6 per cent with perhaps one more in April or May, although that is less certain, according to Dr McLaughlin.

This contrasts directly with the situation facing the ECB this morning. Analysts are deeply divided over a possible rise. Only last week, few economists predicted a rate rise this month. Since Friday that perception has been changing.

Dr McLaughlin believes the main reasons for the range of speculation on the ECB's move is that it still publishes no minutes. And the markets have not yet learned exactly how it operates.

But less than a week ago all statements from ECB board members suggested a rate rise was at least a month away. On Friday, however, the Bundesbank president, Mr Ernest Welteke, suddenly started to talk about risks to inflation. He was followed by ECB president, Mr Wim Duisenberg, who has begun to refer to the currency as a potential problem as its weakness could feed into higher inflation - enough to convince many that a rate rise is on the way today.

But Dr McLaughlin thinks the ECB is more likely to signal a change in emphasis and it will become more and more clear that a rate rise is on the cards. That could be as much as half a percentage point, bringing euro interest rates to 3.5 per cent.

The ECB has often made clear it does not favour the Bank of England's frequent rate changes. It would prefer to move sharply and with finality when it decides.

The board is likely to be keen to be seen to react to gathering economic strength rather than currency weakness for the rise. A move today, particularly a large one, risks associating it with currency weakness and drawing attention to dollar parity as a particular level which the ECB would like to defend.