FOREX-Euro slips vs dollar, yen ahead of ECB rate decision

                                
 * Euro slips ahead of expected ECB rate cut
                                
 * BoE looks set to cut rates to near zero, hurting sterling
                                
 * Dollar rises to 4-month high vs yen
                                
 * Australian dollar on defensive after data
                                
 By Rika Otsuka
                                
 TOKYO, March 5 (Reuters) - The euro slipped against the
dollar and the yen on Thursday as investors braced for the
European Central Bank to cut interest rates later in the day to
help the faltering euro zone economy.
                                
 Sterling also fell against dollar as the Bank of England
looked set to lower rates to close to zero and announce it would
start raising money supply to drag Britain out of recession.
[ID:nL4526405]
                                
 The dollar rose to a fresh four-month high against the yen as
investors were concerned about a deteriorating economy and
deepening political uncertainty in Japan.
                                
 The ECB is expected to cut interest rates to an all-time low
of 1.5 percent from 2 percent on Thursday and slash its 2009 and
2010 economic forecasts to reflect the rapid pace of
deterioration in the euro zone. [ID:nL4897767]
                                
 Market players said a 50 basis point cut was mostly priced in
and they were looking for hints on whether more cuts were likely.
                                
 "The focus is on how far the ECB revises down its forecasts
for economic growth and, in particular, inflation. A significant
cut in its inflation outlook could be taken by the market as a
sign that rates will be taken down further," said Takahide
Nagasaki, chief forex strategist at Daiwa Securities SMBC.
                                
 "This meeting could alter perceptions towards the ECB and
weigh on the euro, because until recently the bank was not
expected to go as far as its counterparts in Britain and Canada."
                                
 The BoE is expected to cut interest rates by half a
percentage point to a record low of 0.5 percent later in the day.
                                
 On Tuesday the Bank of Canada cut its benchmark interest rate
to a record low 0.5 percent. [ID:nN03241]
                                
 Some central banks are running out of room for easing and are
considering non-conventional measures like quantitative easing.
                                
 Quantitative easing, employed by Japan from 2001 to 2006,
refers to flooding the banking system with cash to boost lending
after traditional tools to help the economy, such as rate
targets, have been exhausted.
                                
 The BoE has asked permission from the UK government to embark
on quantitative easing by purchasing gilts and other commercial
assets using new money -- a measure expected to be approved later
in the day. [ID:nB398781]
                                
 There is also hope ECB President Jean-Claude Trichet will use
a post-meeting news conference to hint the central bank is closer
to deciding on unconventional ways to boost the euro zone once it
runs out of ammunition with interest rates, economists said.
                                
 The European single currency fell 0.6 percent from late U.S.
trade to $1.2588 <EUR=>.
                                
 The annual meeting of China's legislature is being watched
after global markets soared on Wednesday on speculation it would
add to a stimulus plan unveiled in November.
                                
 Traders said equity-supportive news from China could further
improve risk appetite. Premier Wen Jiabao, speaking on Thursday,
did not announce an increase in the stimulus plan but analysts
say spending could rise if needed. [ID:nPEK39999]
                                
 The euro slipped 0.4 percent against the yen to 125.00 yen
<EURJPY=R>. Sterling fell 0.4 percent to $1.4140 <GBP=D4>.
                                
 KEY YEN LEVEL IN SIGHT
                                
 The dollar rose 0.3 percent to 99.54 <JPY=>, its highest in
four months, before settling back at 99.41.
                                
 "The dollar is likely to climb above the key 100 yen level,"
said Shuichi Kanehira, senior vice president of the forex
division at Mizuho Corporate Bank. "But its rise above that level
may only be temporary as many players are expected to book
profits on the dollar's recent rally."
                                
 The yen's safe haven status has diminished as the global
downturn has taken a toll on Japan's export-dependent economy,
which shrank a record 3.3 percent in the fourth quarter.
                                
 Government data on Thursday showed Japanese firms' capital
spending tumbled 17.3 percent in October-December from the same
period a year earlier, pointing to a downward revision of gross
domestic product for the quarter next week. [ID:T343796]
                                
 The Australian dollar fell 0.9 percent to $0.6433 <AUD=D4>,
giving up some of the previous day's gains, after poor housing
and trade data bolstered arguments the Reserve Bank of Australia
will need to resume cutting interest rates in April.
 (Additional reporting by Shinichi Saoshiro; Editing by Edwina
Gibbs)