Dec 12 (Reuters) - European stocks pared losses on Thursday, after the European Central Bank cut interest rates by 25 basis points as expected, and left the door open for further easing to support a struggling economy amid heightened political risks.
The pan-European STOXX 600 index (.STOXX), cut losses and was last flat, with rate-sensitive euro zone bank shares (.SX7E), up 0.3%.
The euro dipped post the decision, while yields on the benchmark German bond were little changed. EUR/GVD
The ECB lowered interest rates for the fourth time this year as inflation worries have diminished, shifting the debate to whether the cuts are fast enough to support a stagnant economy that is also at risk of a fresh trade war with the U.S.
Market participants are pricing in 125 basis points worth of interest rate cuts by the end of 2025, according to data compiled by LSEG.
"The ECB is on a direct path of consecutive quarter-point cuts until the deposit rate reaches 2%. This market expectation is now being reinforced by even lower economic forecasts," said Jochen Stanzl, chief market analyst at CMC Markets.
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Investors are now focussed on comments from ECB President Christine Lagarde for more clues on the monetary policy outlook.
"The fact remains that markets are pricing in many more rate cuts than the ECB is officially communicating, so there is a good portion of expectation built into today's equity valuations", added Stanzl
Swiss stocks (.SSMI), rose after the Swiss National Bank cut its interest rate by 50 basis points, the biggest reduction in almost 10 years, to stay ahead of expected cuts by other central banks and cap Swiss franc's rise.
Luxury stocks (.STXLUXP), led sectoral gains with a 0.6% rise, while retail stocks (.SXRP), declined for the fourth-straight session, last down 1%.
SThree Plc (STEMS.L), tumbled 27% after the British recruiter warned on the current financial year profit, citing tough hiring market conditions amid increased political and macro-economic uncertainty, particularly in Europe.
Diageo Plc (DGE.L), rose 2.1% after UBS upgraded the stock, citing positive signs for the spirit maker's U.S. business.
Swiss contract drugmaker Lonza (LONN.S), rose 5.7% following plans to exit its capsules and health ingredients business.
Reporting by Sruthi Shankar and Johann M Cherian in Bengaluru; Editing by Janane Venkatraman and Vijay Kishore
