* Sterling rises after BoE cuts rates by 50 bps as expected
* Pound up 1 cent vs dlr after BoE; euro at 88.03 pence
* ECB seen keeping rates at 2 pct but hinting at March cut
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By Tamawa Desai
LONDON, Feb 5 (Reuters) - Sterling jumped after the Bank of
England cut rates by 50 basis points, as widely expected, while
the market awaited the European Central Bank's interest rate
decision.
By 1208 GMT, the pound had hit a 2-week high at $1.4597, up
almost a cent from just before the decision <GBP=>. The euro
fell 0.8 percent at 88.03 pence <EURGBP=>.
"The cut in the bank rate was fully factored in and the
accompanying statement gives few clues as to the future path of
interest rates so the market will be waiting for the inflation
report next week," said Philip Shaw, chief economist at
Investec.
"There had been talk of a more aggressive move and perhaps
the small bounce in sterling is on the back of that. But given
the volatility of FX markets recently, it's a relatively small
reaction," he added.
The BoE's rate decision put UK interest rates at 1.0
percent, compared with euro zone rates now at 2.0 percent. The
ECB will announce its decision at 1245 GMT.
The ECB is widely expected to leave rates on hold this time.
But ECB President Jean-Claude Trichet has hinted the central
bank will cut again in March and markets will be looking for
clues as to the size of the next move.
Trichet will hold a news conference at 1330 GMT after the
rate decision.
The euro was up one percent against the yen at 115.85 yen
<EURJPY=R>. The dollar rose 0.5 percent to 89.89 yen <JPY=>.
EURO VULNERABLE
Data on Thursday showed German manufacturing orders
suffering their fourth sharp drop in succession in December,
falling by 6.9 percent month-on-month. []
A Reuters poll on Thursday showed the euro little changed
against the dollar this year, but at least one more interest
rate cut and a fragmented European response to the financial
crisis could yet see it tumble further. []
Traders said the euro also remained vulnerable to credit
woes in Russia and eastern Europe. On Wednesday, rating firm
Fitch downgraded Russia's sovereign ratings while Kazakhstan
central bank's decision to devalue its currency.
"The euro has massive problems given the region's
association with eastern European emerging markets as there are
big Italian and German banks with large exposure there,"
IDEAglobal currency strategist Maurice Pomery said.
Looking forward, investors are watching key U.S. non-farm
payrolls data on Friday, expected to show ongoing deterioration
in the labour market of the world's largest economy.
Ahead of this, market participants will be eyeing Thursday's
weekly jobless claims figures at 1330 GMT, followed by durable
goods statistics.
(Additional reporting by Kirsten Donovan; Editing by Ron Askew)
