(Adds dropped words in first paragraph to clarify ECB's action was an interest rate cut)
* ECB cuts rates 75 bps, BoE by 100 bps
* Euro rises versus dollar, hits record high versus pound
* Investors await U.S. nonfarm payrolls report Friday
* For up-to-the-minute market news, click on FXNEWS (Recasts, updates prices, adds quotes, changes byline)
By Wanfeng Zhou
NEW YORK, Dec 4 (Reuters) - The U.S. dollar fell against the euro on Thursday as some investors lauded the European Central Bank's bolder-than-expected interest rate cut as a proactive step to stave off a deep recession in the 15-nation region.
The ECB, seen by market participants as being behind the curve in lowering borrowing costs to boost growth, made its biggest ever cut, lowering benchmark interest rate by 75 basis points to 2.5 percent. Most economists had expected a smaller, 50 basis point step this month. For more, see [ID:nL4623589].
The British pound also bounced off session lows against the dollar. Earlier, the Bank of England cut its key rate by 100 basis points to 2 percent, the lowest level since 1951, and said further steps would be required to prevent a credit squeeze tipping the economy into deep recession. See [ID:nL4304319].
"The markets are beginning to reward those currencies whose central banks are taking the appropriate policy steps, which means cutting rates," said Ken Landon, global currency strategist at JPMorgan Chase in New York.
"People are focused on future growth and anything that would help boost growth in the future would be probably good for a currency right now."
In late trading in New York, the euro was up 0.5 percent against the dollar
The pound was down 0.8 percent at $1.4651
"The market has given the euro the benefit of the doubt, as the ECB cut about as aggressively as they could have reasonably been expected to," said Michael Woolfolk, senior currency strategist at The Bank of New York Mellon in New York.
"Whereas rate cuts normally undermine a currency, right now we're seeing something of an alleviation of uncertainty about the European economy."
The yen rose sharply, as falling stock prices and persistent worries about a deepening global economic downturn prompted investors to keep unwinding riskier positions.
The dollar
PAYROLLS, RATES
Traders were reluctant to take big bets ahead of a key U.S. employment report on Friday. The U.S. economy probably lost 340,000 jobs in November, according to economists polled by Reuters.
U.S. initial claims data released earlier pointed to further deterioration in the labor market while new orders received by U.S. factories plummeted for a third straight month during October. [ID:nN04389503].
But analysts said while the deterioration in the labor market is accelerating, many market participants have already priced in an ugly jobs number, and so it may take a shockingly large decline to trigger a major market move.
Aggressive central bank rate easing around the world was the main theme in the currency market on Thursday. Earlier, Sweden chopped rates by surprisingly big 175 basis point, while the Reserve Bank of New Zealand delivered a large 1.5 percentage point easing. [ID:nWEL81490].
Falling interest rates across the globe take away the yield attraction of currencies whose countries previously had high interest rates, giving further support to the yen and the dollar and weighing on higher-yielding units.
"The key takeaway from today's (central bank) meetings is that global yield differentials are collapsing as fast as the global economy is slipping into a recession," currency strategists at Wells Fargo wrote in a research note.
"With worldwide economic and equity market weakness seeing further scope on the downside we expect the U.S. dollar and the Japanese yen to remain supported over the next few months."
(Additional reporting by Nick Olivari and Steven C. Johnson; Editing by Chizu Nomiyama)
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