Sterling down, short stg futures up after BoE cuts rates

LONDON, Dec 6 (Reuters) - Sterling fell versus the dollar and euro, stocks pared gains and short sterling jumped before easing back on Thursday after the Bank of England cut interest rates to 5.50 percent.

Expectations of an interest rate cut had increased since weak housing and service sector data on Wednesday added to concerns about the health of the UK economy, although the decision was still a very close call.

"In view of the deterioration of the data that we've seen... it wasn't quite as much of a surprise as it would have been a week or so a go. (But) although the market had a big switch around in sentiment yesterday, it does look as though sterling is going to continue be pressured in terms of reducted interest rate sentiment," said Jeremy Stretch, strategist at Rabobank.

At 1202 GMT the pound was down 0.2 percent to $2.0186, from being steady on the day just before the data <GBP=>. The euro was at 72.01 pence from 71.91 pence before the data <EURGBP=>.

Short sterling interest rate futures <0#FSS:> rose as to stand as much as 8 ticks higher before paring gains in choppy trade to stand only 1 tick up across the strip.

The FTSE 100 index .FTSE briefly extended gains and hit the day's high of 6,591.8, up 1.5 percent, but then quickly fell below the level hit before the announcement. The benchmark index had jumped 2.8 percent on Wednesday on increased expecations of a cut in rates.

Markets were pricing in around an 80 percent chance of an interest rate cut compared to a 50-50 chance earlier this week. Analysts polled by Reuters last week attached a 35 percent chance of a cut.

(Reporting by London Markets team)