Jan 25 (Reuters) - The European Central Bank left its key interest rate at a record high on Thursday and noted underlying inflation had continued to fall, also thanks to high borrowing costs.

The bank reiterated its key rate would say at at 4% for some time, as investors continue to bet on hefty rate cuts this year.

MARKET REACTION:

STOCKS: European stocks pared some losses and were last down 0.3%.

FOREX: The euro was little changed, flat against the dollar at $1.0883.

BONDS AND MONEY MARKETS: Interest rate futures continued to price in a roughly 60% chance of a first 25 basis-point ECB rate cut in April, and around 130 bps of cuts by year-end.

Euro zone bond yields gave up some of their daily rise.

COMMENTS:

MARCHEL ALEXANDROVICH, EUROPEAN ECONOMIST, SALTMARSH ECONOMICS, LONDON:

"Those betting on a March rate cut will be disappointed judging from the statement."

"The question for the press conference is whether there is more nuance in the message and any guidance on what it would take for them to cut rates. We think markets have got way ahead of themselves on rate cut pricing."

MADISON FALLER, GLOBAL INVESTMENT STRATEGIST, JPMORGAN PRIVATE BANK, NEW YORK:

"It's not a surprise that the ECB held rates steady today, especially as speakers have been fairly clear that they need to see more confirmation that inflation is moving sustainably back to its target."

"That jives with the recent push-back against market pricing. The wage data due to be released in June is probably the variable to watch from our end."

MICHAEL HEWSON, CHIEF MARKET STRATEGIST, CMC MARKETS, LONDON:

“I think it was interesting to note that they placed an awful lot of emphasis on the fact that previous rate increases were starting to be transmitted forcefully. I thought that was a particularly key point in that financial conditions are dampening demand.

My issue is and has consistently been them pushing back on the timing of rate cuts and saying something along the lines of ‘the more you try to price in rate cuts, the more we’ll push back against it’ and delay cutting rates.

The punishment beatings continue. Germany is in absolute hole with no prospect of getting out of it and yet the ECB seem more worried about inflation than they are about a depression.” (Reporting by the London Markets Team, compiled by Yoruk Bahceli; editing by Amanda Cooper)