The European Central and Bank of England both held interest rates steady while Sweden's Riksbank and Indonesia's central bank both raised rates by 25 basis points in moves that analysts said were likely to be their last upward tweaks in 2008.

Meanwhile, senior Federal Reserve officials on Thursday hinted that the U.S. central bank could keep interest rates at current levels for some time as the most severe inflation threats pass and economic growth seems on the verge of another slowdown.

San Francisco Federal Reserve Bank President Janet Yellen, in particular, threw her weight behind supporting an economy facing "substantial headwinds" over the next few months after an "ephemeral" pickup in the second quarter.

Speaking in Houston, Dallas Fed President Richard Fisher tempered some of his recent, more strident anti-inflation rhetoric, describing the outlook as more uncertain.

"While it seems pretty clear that economic momentum is slowing, the jury is out on whether lesser momentum will be sufficient to translate into relief on the price front over the intermediate to longer term," Fisher said.

Earlier on Thursday ECB President Jean-Claude Trichet said economic data pointed to weakening growth at mid-year while inflation remained high and risks were to the upside, leaving the ECB little option but to leave interest rates unchanged.

New ECB staff economic projections showed an increase in inflation forecasts and a cut in growth expectations compared with their last prognosis three months ago.

"The ECB just raised rates two months ago, so there is no way they could have cut rates now. And to raise with the economy slowing faster than they expected when they raised rates in July would make no sense either," Bank of America economist Holger Schmieding said.

Euro zone inflation at 3.8 percent in August is roughly twice the 2.0 percent level the ECB is comfortable with, while economic growth in the second quarter of the year showed its first quarterly contraction in the currency bloc's history, shrinking by 0.2 percent as investment and consumption fell.

The Bank's decision on Thursday to leave rates on hold for a fifth month running did nothing to douse expectations that recession worries could prompt a cut before the end the year.

The speed and scale of Britain's economic slowdown, however, means interest rates could come down quite rapidly once inflation, roughly double the central bank's 2.0 percent target, has peaked. Money markets are pricing in a good chance of three quarter-percentage point cuts by this time next year.

The U.K. economy failed to grow in the second quarter for the first time since the recession of the early 1990s and activity surveys show most parts of the economy are now contracting.

"Given our view that the UK has entered recession and is unlikely to exit until next summer, we believe that price pressures will moderate and this will open the door for aggressive interest rate cuts. We see the policy rate falling to 3.50 percent in 2009," James Knightley, an economist at ING in London said.

TIGHTENING CYCLES PEAK

Sweden's Riksbank had earlier judged it necessary to tighten policy a notch, increasing its key interest rate by a quarter percentage point to a fresh 12-year high of 4.75 percent, but at the same time signalling that its nearly three-year hiking cycle had ended.

Indonesia's central bank also raised rates in line with expectations on Thursday, adding 25 basis points to borrowing costs to make key rates 9.25 percent and bringing to five the number of times Bank Indonesia has hiked this year.

But analysts said it may be the last hike of 2008 as price pressures have probably peaked. Bank Indonesia's comment on that "it is necessary to keep demand growth on the right track" reinforced the view that rates had crested in Jakarta, even if they are not set imminently to fall.

GROWTH VERSUS INFLATION

The growth versus inflation dilemma is playing out around the world.

"You could say that global tightening is coming to an end. Most central banks will use the excuse of slightly weaker growth and a turning point in inflation to stop raising rates," said Robert Prior-Wandesforde, an economist at HSBC in Singapore.

"In the developed world that is more than justified because interest rates, excluding Japan, could be described as tight."

Turkish central bank governor Durmus Yilmaz said on Thursday the bank will consider all options, including measured interest rate cuts, from September when its board meets amid improving inflation conditions.

Turkey left benchmark borrowing rate unchanged at 16.75 percent last month after raising rates by 150 basis points since May due to worsening inflation. Inflation in August was lower than expected due to a sharp fall in clothing prices.

Chile's central bank is widely expected to raise its benchmark interest rate by 50 basis points for a fourth month in a row on Thursday, due to persistently rising consumer prices. The authority meets is expected to release its decision after markets close on Thursday.

But HSBC's Prior-Wandesforde said that while inflation was peaking around the world, it was not set to collapse. That may mean central banks in emerging markets join in the pause in the present tightening cycle, but may have to raise again in future.

"In the emerging world monetary policy is very loose and behind the curve. They've been playing catchup but haven't caught up," Prior-Wandesforde said.

(Additional reporting Adriana Nina Kusuma in JAKARTA, Jan Dahinten in SINGAPORE, Nicklas Pollard in STOCKHOLM, Krista Hughes in FRANKFURT, Christina Fincher in LONDON, Maria Jose Latorre in SANTIAGO, Ros Krasny in SALT LAKE CITY and Alister Bull in HOUSTON)

(Editing by Nick Edwards, Neil Fullick, David Stamp)