THE FIGHT against inflation in the 15-country euro zone will remain the European Central Bank's (ECB) top priority even if that clashes with US attempts to prevent a further slide in the dollar, a senior official at the bank made clear yesterday.

The ECB's actions and words "aim at ensuring the preservation of price stability", said Lucas Papademos, the bank's vice-president. His comments follow US concern over the effect on the dollar of the ECB's warning last week that it would probably increase its main interest rate next month.

The ECB communicates regularly with the Fed and does not intend to create transatlantic tensions. It has also seen other central banks signalling heightened concern about global inflation - and could argue that its plan to raise the main policy rate by a quarter percentage point to 4.25 per cent should not have been a surprise.

Euro zone inflation, at 3.6 per cent, is far above the ECB's target of an annual rate "below but close" to 2 per cent. Inflation is expected to remain above that level significantly longer than previously expected.

The ECB's latest financial stability review, issued last night, shows risks to the euro zone have increased in the past six months. Moreover, the report adds, the outlook for financial stability is "highly uncertain", with much depending on the US housing market.

Separately, the ECB signalled last night that it was preparing once again to provide extra liquidity as banks come under pressure to improve financial positions. Mr Papademos said surging oil prices had recently added to the risks to financial stability - as well as inflation.

But he denied the bank's interest rate warning last week would add to market instability.

"I don't accept the view that our communication about monetary policy can in any way affect adversely market volatility," he said.