* BoE, ECB keep rates unchanged
* BoE unexpectedly extends bond purchases
* Stocks gain on positive earnings
* Wall Street set for gains at start
* Sterling, euro fall against dollar
By Jeremy Gaunt, European Investment Correspondent
LONDON, Aug 6 (Reuters) - The European Central Bank and Bank
of England both kept interest rates unchanged on Thursday but
the latter said it would pump more money into the UK economy by
buying bonds, driving sterling lower.
Equity markets, meanwhile, were carrying on with their five
month rally, driven higher by positive earnings news. Wall
Street looked set to join in with mild gains.
While there was little tension in the markets over actual
rate changes from the ECB and BoE, investors are keenly looking
for signs of optimism about the economic outlook and moves to
add more stimulus.
They got some of the latter from the BoE, which surprised
markets by extending its quantitative easing programme, raising
the size of its bond purchase scheme to an unexpectedly large
175 billion pounds ($297 billion) from 125 billion pounds.
The BoE said the UK economy had been suffering a deeper
recession than expected, though there were signs it was
bottoming out and conditions in Britain's main export markets
were improving.
Stock markets were generally looking past the central bank
meetings at company earnings. The MSCI all-country world index
<.MIWD00000PUS> was up 0.4 percent for a nearly 11 percent gain
over July and August so far.
Europe's FTSEurofirst 300 <> gained more than 1
percent. Belgian banking and insurance group KBC <KBC.BR>
returned to net profit in the second quarter and Commerzbank
<CBKG.DE> beat analyst expectations thanks to lower writedowns
for problem assets.
The European benchmark index is up more than 45 percent from
its lifetime low of March 9.
"The 200-day moving averages are turning up, a signal that
it's a bull market," said Bernard McAlinden, investment
strategist at NCB Stockbrokers, in Dublin. "But ... in the near
term, there is vulnerability to some kind of correction, as it
looks stretched."
Japan's Nikkei <> closed up 1.3 percent.
BANK SURPRISE
Sterling fell sharply against the dollar and gilt futures
soared after the Bank of England move.
"That they expanded quantitative easing by 50 billion pounds
is more dovish than expected, so sterling is weakening
accordingly," said Daragh Maher, senior currency strategist at
Calyon in London.
The pound was down 0.8 percent at $1.6844 <GBP=>. The euro
was down 0.2 percent at $1.4405 <EUR=>.
The 10-year Bund yielded <EU10YT=RR> 3.328 percent, down 2
basis points.
(Additional reporting by Brian Gorman and Tamawa Desai; Editing
by Ruth Pitchford)
(To read Reuters Global Investing Blog click on
http://blogs.reuters.com/globalinvesting; for the MacroScope
Blog click on http://blogs.reuters.com/macroscope; for Hedge Hub
click on http://blogs.reuters.com/hedgehub)
