March 2 (Bloomberg) -- The European Central Bank raised its benchmark interest rate for the second time in three months and indicated that more increases are possible as economic growth and inflation accelerate. Stocks and bonds fell and the euro rose.

``We stand ready to do whatever is necessary and appropriate to ensure price stability,'' ECB President Jean- Claude Trichet said at a press conference in Frankfurt after the ECB lifted the refinancing rate to 2.5 percent from 2.25 percent. The ECB has ```a stimulative monetary policy. There is no doubt in my mind.''

The bank said the economy of the dozen nations sharing the euro will expand about 2.1 percent this year, up from a December forecast of 1.9 percent. Export earnings are fueling domestic spending by companies such as LVMH Moet Hennessy Louis Vuitton SA, which today said second-half profit rose 22 percent.

Trichet's comments ``imply that the ECB is thinking of further monetary tightening during the course of the year,'' said Julian Callow, chief European economist at Barclays Capital in London. ``I would look for that to happen on June 8.''

The Dow Jones Stoxx 600 Index fell 0.8 percent to 328.05 at 4:35 p.m. in London. The decline in bonds sent the yield on German two-year notes, among the most sensitive to changes in rate expectations, up 0.06 percentage point to 3.06 percent, the highest since Dec. 6, 2002. The euro climbed as high as $1.2016 from $1.1924 yesterday.

Faster Inflation

Confidence among European executives and consumers rose to the highest in five years in February. Inflation may average 2.2 percent this year and next, up from a previous estimate of about 2.1 percent, and 2 percent in 2007, Trichet said today.

Investors increased bets the ECB will raise the benchmark refinancing rate to 3 percent by the end of 2006, futures trading suggests. The yield on the three-month contract for December settlement was 3.27 percent, compared with 3.22 percent yesterday.

The contracts settle to the three-month euro area inter- bank offered rate for the euro, which has averaged 15 basis points more than the ECB's benchmark rate since the currency's launch in 1999.

``Interest rates across the maturity spectrum remain at very low levels in both nominal and real terms, and our monetary policy remains accommodative,'' Trichet said. ``We will continue to monitor closely all developments with respect to risk to price stability.''

Wage Demands

In the past month, ECB council members Trichet, Yves Mersch, Nicholas Garganas and Axel Weber expressed concern about so-called second-round effects, as higher oil prices fan demands for higher pay, creating an inflationary spiral. IG Metall, the German engineering and metalworkers' union that traditionally sets the benchmark for other industries, demanded a 5 percent pay increase, more than twice the inflation rate.

Politicians and some economists see a risk that higher ECB rates will choke growth. Dario Perkins, an economist at ABN Amro Holding NV in London, said Feb. 24 that the ECB has irrational fears of an ``inflation monster'' and that the bank is being ``too aggressive.''

Pervenche Beres, chairwoman of the European Parliament's economic and monetary committee, today asked: ``Mr. Trichet, by raising interest rates today, doesn't the ECB risk halting the fragile upturn in growth?''

Global Rates

Manufacturing expansion accelerated to the fastest pace in 19 months in February, according to an index compiled by NTC Research Ltd. The euro-region unemployment rate declined to 8.3 percent, from 8.9 percent in September 2004.

With the exception of the U.K., where policy makers pared their benchmark lending rate in August to 4.5 percent and have left it unchanged since, central bankers worldwide are in the process of lifting borrowing costs.

Bank of Japan Governor Toshihiko Fukui has embarked on a campaign to prepare markets for higher rates as the world's second-largest economy emerges from seven years of deflation. The U.S. Federal Reserve increased interest rates 14 consecutive times since June 2004 to a four-year high of 4.5 percent.

The Fed will increase borrowing costs by at least as much as the ECB in 2006, according to a Royal Bank of Scotland Group Plc survey published yesterday in London.

The euro area will trail the U.S. in economic growth for a sixth year in 2007, according to Organization for Economic Cooperation and Development projections published Nov. 29. The U.S. unemployment rate is almost half that of Europe, and concern about job losses has made Europeans reluctant to increase spending. Retail sales in the region fell in January, the Bloomberg purchasing managers index showed Feb. 6.

Inflation Concerns

Higher energy costs are also forcing consumers to spend more on fuel. Crude oil prices have risen 84 percent in the past two years, climbing as high as $70.85 a barrel on Aug. 30. A barrel of crude cost $62.55 in New York trading today.

``As regards the future, we will decide to move on the basis of facts, figures, data, on our future assessment of the risks to price stability and their own evolution,'' Trichet said today. European consumers ``are not fully satisfied with the current level of inflation and they are calling to us to be up to our responsibility.''

Growth in M3, a measure of money supply the ECB uses as a barometer of future inflation, accelerated to 7.6 percent in January from a year earlier, up from a 7.3 percent gain in December, the bank said this week.

The ECB has estimated euro-region home values exceed the historical average by as much as 25 percent. The expansion in M3 has topped 4.5 percent, the level the ECB says is non- inflationary, every month since May 2001.