LONDON - STERLING initially fell and UK interest rate futures soared on Thursday after the Bank of England surprised markets by delivering a much bigger-than-expected cut in interest rates to boost the ailing economy.

The UK central bank slashed rates by 1.5 percentage points to 3.0 per cent, wrongfooting market expectations for a cut of up to 1 percentage point , due to tighter credit conditions as the global banking system was experiencing its most serious disruption in almost a century.

Sterling fell as low as US$1.5722 from around US$1.5860 shortly before the announcement. By 1214 GMT (8.14pm Singapore time), it had recovered those losses.

Britain's FTSE 100 briefly pared losses after the announcement, but resumed its fall to be down 3.1 per cent at 1214 GMT.

December Gilt futures soared after the announcement, climbing 78 ticks on the day.

'The size of the rate cut is a surprise, and the initial reaction will be sterling to weaken.' said Audrey Childe-Freeman, currency strategist at Brown Brothers Harriman in London.

'But the mood of the market is to reward proactive central bank action, so the negative impact on sterling may prove to be short-lived and not as large as it would be under normal circumstances.' -- REUTERS