Dec 10 (Reuters) - The European Central Bank euro announced fresh stimulus measures broadly in line with expectations on Thursday. Following are highlights of ECB President Christine Lagarde’s comments at a post-policy meeting press conference. The resurgence in COVID-19 cases and the associated containment measures are significantly restricting euro area economic activity, which is expected to have contracted in the fourth quarter of 2020. Incoming information ... signals a resumption of euro area economic activity, although the level of activity remains well below the levels prevailing before the coronavirus pandemic, and the outlook remains highly uncertain. While the rebound of the economic activity in the third quarter was stronger than expected and the prospect for the rollout of vaccines are encouraging, the pandemic continues to pose serious risks to public health and to the euro area and global economies. The depth of (the second wave), the duration of it, and the containment measures associated with it were not anticipated to the extent that they actually occurred and are still taking place. Both high-frequency and survey indicators bottomed out in April and showed a significant, though uneven and partial, recovery in May and June alongside the ongoing containment of the virus and the associated easing of the lockdown measures. Actual and expected job and income losses and the exceptionally elevated uncertainty about the evolution of the pandemic and the economic outlook continue to weigh on consumer spending and on business investment. Headline inflation is being dampened by lower energy prices and price pressures are expected to remain very subdued on account of the sharp decline in real GDP growth and the associated significant increase in economic slack. ‘DISAPPOINTINGLY LOW’ INFLATION In terms of inflation, let me say that it is disappointingly low. It has been negative for the last three months, it’s at -0.3% yet again, and it is rooted in some specific factors that have to do with the very low cost of energy, the German VAT. But it is also caused by weak demand, it is also caused by lower wages, and it is also caused by the exchange rate appreciation. Uncertainty over the scale of the rebound remains high ... The balance of risks remain on the downside. We have good reasons to believe that by the end of 2021, with uncertainty associated with it ... we will have reached sufficient herd immunity to hope that by the end of 2021 the economy will begin to function under more normal circumstances. Ample monetary stimulus remains necessary to support the economic recovery and to safeguard medium-term price stability. We have slowed down a little bit the pace of purchases. Unless there were significant upside surprise (to economic outlook), our baseline remains we will use the entire envelope of PEPP. We insist on maintaining favourable financing conditions. It will entail variable purchases. So it will be slightly different from what it had been in the past, not necessarily fixed monthly linear purchase, but purchases that will adjust depending on market conditions in order to procure those financing conditions. We strongly welcome the European Commission’s EU next generation proposal. It will need to be firmly rooted in sound structural policies. We have front-loaded (PEPP) purchases - just to remind you, we have purchased over 360 billion euros in the first couple of months and that was at the end of June, effectively. It is effective, it is adequate and it is working. We have not discussed that (altering PEPP programme) ... We do not see a need to revisit. During this meeting of the Governing Council, we really spent a good deal of time looking at the economic circumstances ... And really, seeing the developments in the economy, we really felt that we were in a good place at the moment. We have good reasons to believe that by the end of 2021 ... we will have reached sufficient herd immunity to hope that ... the economy will begin to function in more normal circumstances. We do not target the exchange rate. But clearly exchange rate, and in particular the appreciation of the euro, plays an important role and exercises downward pressure on prices. Trust me, we are going to continue that discussion - we have to bear in mind those risks and the direct and indirect impacts that it has on the natural interest rate, that it has on price stability objectives and the impact on inflation, for instance, of major weather circumstances or draught, or a carbon tax if and when it comes ... so we have great debates ahead and they will come. (Reporting by Larry King)