Euro zone recession confirmed

By Jan Strupczewski

BRUSSELS (Reuters) - Falling investment and a weaker trade performance made the euro zone economy contract in the third quarter, data showed, confirming the bloc's first recession as the European Central Bank meets to discuss the size of a rate cut.

The European Union's statistics office, Eurostat, confirmed its earlier estimate that the economy of the 15 countries using the euro shrank 0.2 percent quarter-on-quarter in July-September after a 0.2 percent fall in the previous three months.

Eurostat also revised down its previous annual estimate for the third quarter to growth of 0.6 percent from 0.7.

"It's just a prelude to a serious recession as two of the months, July and August, were before the real crisis erupted. We expect a 75 basis point cut from the ECB today," said Holger Schmieding, economist at Bank of America.

In past weeks the ECB has strongly signaled it would cut rates on Thursday, but gave no clues on the size of the move.

Markets expect a cut of at least 50 basis points in its main refinancing rate to 2.75 percent or lower to help avoid a protracted recession as inflation falls rapidly.

Expectations of a deep ECB cut were boosted after Sweden's central bank, the Riksbank, surprised markets with a record rate cut of 175 basis points to 2.0 percent and the central bank of New Zealand cut its rates by 150 bps to 5.0 percent.

The ECB has cut interest rates by a total of one percentage point since early October, to 3.25 percent, in two moves of 50 bps. It wants inflation to be just below 2 percent.