Economic activity in the euro zone gathered momentum at the end of last year, according to statistics released yesterday by EU statistical agency Eurostat.

In the fourth quarter of 2005 Gross Domestic Product (GDP) - a measure of the value of goods and services produced in the economy - grew by 1.6 per cent in annual terms, faster than the 1.2 per cent rate recorded in the third quarter. Growth in domestic demand also accelerated in the euro zone to 1.9 per cent compared with 1.3 per cent in the third quarter.

The European Central Bank (ECB) may raise interest rates as early as March if the euro zone economy continues to recover.

The central bank yesterday held its key interest rates unchanged but ECB president Jean-Claude Trichet said that the bank was monitoring economic growth and inflationary pressures "very closely". Growth still remains sluggish in the zone's largest economy Germany, where GDP growth was just 0.5 per cent in the final quarter of last year.

However, the European Commission yesterday forecast that growth in the euro zone would accelerate during the first half of the year, a development that would strengthen the possibility of the bank again increasing interest rates within the euro-zone.