The German central bank chopped its securities repurchase rate - the key influence on market rates - by 25 basis points to set a fixed rate of 6 per cent. That encouraged speculation that it could cut its discount rate, now 5.75 per cent, on 16 December, the final meeting of its council this year.
The German decision prompted reductions in Belgium and the Netherlands and was foreshadowed by a reduction in Denmark earlier in the day. It also lifted hopes that the Bank of France would lower its own key rates early next week.
Denmark cut its 14-day repurchase rate by 0.25 points to 7.25 per cent, Belgium lowered the central rate 0.30 points to 8 per cent, and the Dutch central bank cut three key rates by 0.25 points.
Persistent speculation over lower UK base rates and an easing mark helped to push sterling up yesterday. The pound rose almost half a pfennig to top DM2.55. However, analysts remained divided on the timing of another cut in base rates, from the present 5.5 per cent. Some hope for a cut before Christmas, and others not until the new year. Glenn Davies, of Credit Lyonnais Securities, said: 'The Chancellor made it very clear that the rate cut we've had took the Budget into account.'