ECB seen cutting rates by 50 basis points or more

By Krista Hughes

FRANKFURT (Reuters) - The European Central Bank is expected to cut interest rates for the third time in less than two months on Thursday, with opinions split on the odds of a tried-and-trusted 50 basis point cut or a more aggressive move.

Two-thirds of analysts in a Reuters poll expect the ECB to stick with past practice and lop 50 basis points from borrowing costs on December 4, taking the benchmark rate to 2.75 percent, its lowest in more than two years.

But a significant minority, 24 out of 81 polled, see a 75 or even 100 basis point move at the Brussels meeting, one of two meetings a year held outside Frankfurt, due to a sharp dip in economic activity as well as inflation.

Markets are nearly fully pricing in a 75 basis point cut, more than the ECB has ever moved before in one go, according to EONIA interest rate contracts.

The meeting comes against a backdrop of growing central bank concern about the impact the financial crisis is having on the real economy, with the Swedish and Japanese central banks both calling unscheduled meetings for this week.

Although the ECB has lowered rates twice since early October, the U.S. Federal Reserve, the Bank of England and the Swiss National Bank have all cut by more. The BoE is also expected to reduced British rates again by at least 50 basis points on Thursday.

The euro zone has fallen into recession and recent slides in sentiment and employment give no hope of a recovery soon. Annual inflation, for its part, plummeted to 2.1 percent in November from 3.2 percent a month earlier.

Economists said the ECB was likely to steer clear of a bumper cut and opt for a third consecutive 50 point move, while signalling that more loosening in 2009 is still an option.