Sterling firm vs euro, dlr; BoE report supports

LONDON, May 1 (Reuters) - Sterling held firm versus the euro and dollar on Thursday with some investors taking crumbs of comfort from a Bank of England report suggesting the cost of the global credit crunch may not be as much as some expected.

Sterling also benefited from the U.S. Federal Reserve's expected decision to ease rates by 25 basis points with a statement that left options open for further cuts if needed.

The BoE's twice-yearly Financial Stability Review found the scale of losses and the economic fallout from the credit crunch may not be as bad as feared and subprime write-offs might end up costing less than half market forecasts [ID:nL01588933].

"The stability report was kind of encouraging ... it found the shadow overhanging the economy might not be as long as perhaps some people had feared or perceived," Rabobank strategist Jeremy Stretch said.

"That might help risk appetite. And sterling with interest rates at 5 percent is still comparatively attractive, particularly when you compare that to the U.S. with rates at 2 percent," he said.

By 0744 GMT, sterling was up 0.1 percent on the day versus the dollar GBP= at $1.9883, having earlier hit an intraday high at $1.9909. The euro was down a third of a percent at 78.40 pence EURGBP=.

Traders said the euro's losses were accentuated by some hedge fund unwinding long euro/sterling positions. Trade was also thinned by national holidays in much of Europe.

In contrast to the stability report, Bank of England policymaker David Blanchflower highlighted continued problems facing the bank as it grapples to contain inflation and slowing growth.

He said in a newspaper interview that too much attention was being paid to the short-term upside risks to inflation, ignoring the risk of a sharp economic downturn.