* Euro zone March PPI up 0.7 m/m, 6.7 y/y
* Energy prices contribute to PPI rise above expectations
* Seen adding to ECB concerns about inflationary pressures
(Recasts with economist's comments)
By Jan Strupczewski
BRUSSELS, May 3 (Reuters) - Surging energy costs drove euro zone producer price inflation to its highest level in 2-1/2 years in March, strengthening the case for more interest rate rises.
The European Union's statistics office Eurostat said prices at factory gates in the 17 countries using the euro rose 0.7 percent month-on-month in March for a 6.7 percent year-on-year increase, the highest since September 2008, when it reached 7.7 percent.
Economists polled by Reuters had expected a 0.6 percent monthly rise and a 6.6 percent annual gain.
Rises in prices charged by producers, unless absorbed by intermediaries or retailers, mean higher prices for consumers and therefore signal inflationary pressures.
The European Central Bank increased its benchmark interest rate to 1.25 percent last month from a record low 1.0 percent as inflation rose to 2.8 percent in April from 2.7 percent in March.
The ECB has led the way among the big four central banks in raising interest rates, emphasising its determination to bring keep inflation below, but close to 2 percent over the medium term. It meets to review rates again on Thursday.
"The further spike up in euro zone producer prices in March will reinforce the ECB's concern that high energy and commodity prices are continuing to exert serious inflationary pressures lower down the supply chain," said Howard Archer, economist at IHS Global Insight.
"It will likely fuel the central bank's belief that it needs to raise interest rates further to show it is prepared to take a tough stance on inflation despite the still difficult economic situations in many euro zone countries and the global economic uncertainties resulting from high oil prices and events in Japan," Archer said.
The main driver of higher producer prices in March was energy, the price of which rose 1.9 percent against February, to be 13 percent higher than a year earlier.
Without the volatile energy and construction figures, producer prices rose 0.2 percent month-on-month and 4.5 percent year-on-year.
"We currently expect the ECB to lift interest rates by a further 25 basis points to 1.5 percent in July, but there is a very real likelihood that it could act again as soon as June," Archer said.
"Further out, we see gradual increases in the ECB's key interest rate to 2.50 percent by the end of 2012," he said.
(Reporting by Jan Strupczewski, editing by Rex Merrifield/Ruth Pitchford)