European bank to cut rates

The European Central Bank is set to cut interest rates to counter widespread fears of a US recession crossing the Atlantic.

The cut, possible as early as this week, will be the first by the ECB this year. It is likely to be followed by a drop in UK rates next month.

World stock markets plunged in panic last Thursday on heightened fears of a US recession. The US Federal Reserve Bank cut rates half a per cent to 5 per cent on Tuesday, but it was insufficient to stop the slide.

This weekend fears of a further market rout eased as Wall Street's Dow Jones index closed 115 points up at 9,504. The hi-tech Nasdaq index also rallied, as did European markets. London's FTSE 100 index also recovered, up 87 points to 5,402, after threatening to dip below 5,000 in the sell-off.

Expectations of a European rate cut - by a quarter of a point to 4.5 per cent - were heightened after comments by EU central bankers and finance ministers on Friday.

Sterling, the euro and the yen gained against the dollar, as the US currency weakened on recession fears.

'A cut in ECB rates is now in the offing, if not next week, then next month,' said Peter Oppenheimer, global equity strategist at broker HSBC.

The foot and mouth crisis is also likely to speed cuts in UK interest rates, according to a leading forecaster, the Centre for Economics and Business Research.

The likely cut, another quarter point, would take UK rates to 5.5 per cent.