European stocks extended gains while sterling slipped across the board as the Bank of England cut interest rates, joining other central banks in an attempt to counter the risk of an economic slowdown from the credit crisis.

The BoE cut interest rates by 25 basis points to 5.5 percent and said growth was slowing and credit conditions were tightening for households and businesses.

The European Central Bank left euro zone rates on hold, but President Jean-Claude Trichet, who holds a news conference later, is under pressure to strike a more balanced policy.

The BoE's move follows the Bank of Canada which eased policy this week and the Federal Reserve which has already cut interest rates in September and October and is expected to follow up with another next week.

Sterling is going to continue be pressured in terms of reduced interest rate sentiment and also the realization that growth is going to significantly undershoot previous expectations through the course of 2008, said Jeremy Stretch, strategist at Rabobank.

The whole idea of decoupling has suffered some fairly mortal blows this week... I think it's inevitable that we will see a slow down being spread across the globe.

The FTSEurofirst 300 index was up as much as 1.5 percent on the day after the BoE rate decision before trimming gains to 0.6 percent.

Royal Bank of Scotland rose nearly 8 percent after the bank said that it would beat 2007 profit forecasts and that asset writedowns would total 1.25 billion pounds ($2.55 billion). This amount not was not as bad as markets had feared.

Sterling was down 0.2 percent at $2.0186 and fell to 72.01 pence per euro.

The MSCI main world equity index was up 0.3 percent, while U.S. stock futures indicated a firmer open on Wall Street. Emerging sovereign spreads tightened 7 basis points while emerging stocks were up 0.6 percent.

The December Bund future was down 7 ticks, while short sterling interest rate futures rose in choppy trade.

Some analysts expect the BoE to cut interest rates further.

(Thursday's move) is the first step in a prolonged period of monetary easing that could see rates fall very sharply... If the financial market turmoil continues, a move in January would not be out of the question, said Roger Bootle, economic adviser to Deloitte.


The money market showed tentative signs of cooling down as London interbank offered rates for one-month sterling fell to 6.74750 percent from this week's 9-year high while dollar rates eased for a second day.

The move in dollar rates comes ahead of the Fed's meeting next week.

Later on Thursday, U.S. President George W. Bush is expected to offer a plan to freeze mortgage payments for five years for many homeowners facing increases in their monthly payments. This could alleviate the impact from the subprime fallout on the economy.

U.S. light crude oil fell 1 percent to $86.53 a barrel, pressured partly by the dollar's rally to a one month against a basket of major currencies.

Gold fell to $787.10 an ounce.