ECB poised to cut rates sharply after Swedish shock

By Marc Jones

FRANKFURT (Reuters) - The European Central Bank is expected to cut interest rates sharply on Thursday after a huge Swedish rate reduction stunned financial markets, stoking speculation of a record euro zone move.

ECB policymakers will be armed with a new set of in-house forecasts likely to confirm that the euro zone economy is in serious trouble. These might also encourage the normally cautious Governing Council to act boldly.

Opinions on how far the ECB will move had been split between those who thought it would stick to a tried-and-tested 50 basis point cut, which would be its third by that amount in less than two months, or opt for a record 75 basis points or more.

Record rate cuts by two leading central banks on Thursday fanned bets on a bumper move in the euro zone as well, with financial markets fully pricing in a 75 basis point cut from the current 3.25 percent, and some seeing even more.

"The ECB has to be bold now," said Kenneth Broux, financial markets economist at Lloyds TSB.

David Mackie, head of Western European economic research at JPMorgan, also predicted the ECB would cast caution aside. "Following the surprising 175 basis point ease by the (Swedish) Riksbank this morning, we now believe you should expect at least 100bp of easing from the ECB later," he said.

However, other analysts disagreed the ECB would go that far. "I don't think it (the Riksbank) really changes anything. The ECB is just more cautious in the way it sets out monetary policy," said Barclays Capital economist Julian Callow.

"I would have thought 75 basis points is likely, 100 is an outside chance but with ECB officials having made such issue to proceed steadily I don't see them really going by more than 75."