ECB's Draghi says some signs of euro zone stabilization

FRANKFURT (Reuters) - The euro zone economy faces high uncertainty and inflation will drop below 2 percent after several months, European Central Bank President Mario Draghi said on Thursday, but added there were some signs of stabilization.

"Ongoing financial market tensions continue to dampen economic activity in the euro area, while, according to some recent survey indicators, there are tentative signs of stabilization activity at low levels," Draghi told a news conference after keeping interest rates on hold in line with expectations

"The economic outlook remains subject to high uncertainty and substantial downside risks," he said.

At his first meeting in November, Draghi said the euro faces a mild recession. He did not repeat that in his early comments on Thursday.

The ECB kept rates on hold after back-to-back cuts in November and December, Draghi's first two months in charge at the bank. Last month, the ECB also said it would offer banks 3-year funds in an unprecedented move to fend off a credit crunch.

(Writing by Paul Carrel. Editing by Jeremy Gaunt.)