FRANKFURT (Reuters) - European Central Bank (ECB) president Jean-Claude Trichet warned euro zone countries against following the US' example and using extra public spending to boost growth.

In a news conference following the ECB's decision to keep euro zone interest rates on hold yesterday, the former Bank of France governor also stressed Paris was not exempt from the European Union's (EU) budget rules.

"Discretionary fiscal loosening in EU countries should be avoided," Mr. Trichet said, arguing that those skirting the rules of an EU deficit-cutting agreement struck last year threatened to undermine its credibility and hurt the bloc's long-term health.

"It is essential for Europe to stick to the rules," he said.

French President Nicolas Sarkozy has said his country needs more time to shore up economic growth before trimming its deficit as required under the Stability and Growth Pact, which aims to balance the budgets of the 15-nation euro zone in 2010.

Asked if the European Commission should give France an early warning over its possible non-compliance, Mr. Trichet replied it was critical that all EU countries needed to behave "as properly as possible" in their fiscal management.

"The (ECB) Governing Council is very, very firm on that. Of course it does not exclude any country, by definition, from this strict implementation of the Stability and Growth Pact," he said. "We fully, fully support and back the Commission, which is the guardian of the Stability and Growth Pact, in this respect."

Mr. Trichet rarely refers to individual countries in his remarks about the euro zone, whose largest economies are Germany, France, Italy and Spain.

The ECB's decision to keep its benchmark interest rate stable at four percent, though anticipated by financial markets, stood to exacerbate tensions between US and European policy-makers on how to save the global economy from looming recession.

The White House has rushed forward a fiscal stimulus package worth $150 billion and the Federal Reserve has slashed official interest rates to help spur consumer spending and avert a US downturn that economists say may be felt worldwide.

And while the Stability and Growth Pact serves to shrink euro zone budget deficits by 0.5 percent a year, US President George Bush said earlier this week that Washington's budget deficit was set to more than double this year to $410 billion.

"We are balanced. We are financing our investments with our savings and have no domestic or external imbalances," Mr. Trichet told the news conference at the ECB headquarters in Frankfurt.

"In the US, as you know, you have a big level of imbalances. That makes the difference on two sides of the Atlantic," he said.