ECB likely to make hefty rate cut

By Paul Carrel

FRANKFURT (Reuters) - The European Central Bank is expected to slash interest rates by 50 basis points or more later on Thursday, hoping to breathe life into the euro zone economy as it faces its first recession.

ECB President Jean-Claude Trichet has already said a second cut in just under a month is a possibility at the Governing Council's policy meeting. Analysts are convinced this will happen, and are waiting for Trichet to give any indication that it might take further action next month.

All 81 economists polled by Reuters last week expect the ECB to lower rates by 50 basis points to a two-year low of 3.25 percent on Thursday, and some people in the market expect more.

"Seventy five (basis points) is possible. But it is much more likely that it will be 50," said Holger Schmieding, co-head of Europe economics at Bank of America. He put the likelihood of a 75 basis point cut at 10 percent.

However, figures derived from Euro Overnight Index Average (EONIA) rates showed interest rate traders almost fully pricing in a 75 bps cut to 3.0 percent.

ECB policymakers meet in Frankfurt at 8:00 a.m. British time against a bleak economic backdrop. The European Commission said on Monday that the euro zone is already in a technical recession and economic growth will come to a virtual standstill next year.

The economy, which had grown steadily since the euro zone's creation in 1999, contracted by 0.2 percent in the second quarter this year and many expect GDP figures on November 14 to show further shrinkage in the third quarter.

Business confidence in major economies is at record lows and the Markit Eurozone Purchasing Managers' Index showed that service sector activity in the euro zone touched a fresh decade low in October.