European Central Bank on Thursday cut its key lending rate by 75 basis points to 2.5% from 3.25%. Today's cut is the largest since the Frankfurt based bank was established in 1998.

ECB President Jean-Claude Trichet said "The level of uncertainty remains exceptionally high.The outlook remains surrounded by an exceptionally high degree of uncertainty. Risks to growth lie on the downside." He added "Lower commodity prices and weaker demand leads us to conclude that inflationary pressures are diminishing further"

Earlier in November, European Central Bank President Jean-Claude Trichet had suggested that the bank may lower interest rate when its Governing Council meets on Dec. 4 in Brussels. At a news conference, Trichet had said, "we will have a lot of new information and we did not exclude to decrease rates again if the upside risk to prices alleviate."

A stream of data indicating weakness in economy has forced central banks around the world to aggressively cut rates.

On Wednesday, the final Markit euro-zone services PMI was downwardly revised to 42.5, from an earlier estimate of 43.3.In October, the index stood at 45.8. The November reading is the lowest since the record began. A reading of less than 50 signals a contraction, while a figure of more than 50 signals expansion.

The Bank of England slashed the benchmark interest rate by 100 basis points to 2%, the lowest level since 1951.

In a statement, the bank's Monetary Policy Committee said "In the United Kingdom, business surveys have weakened further and suggest that the downturn has gathered pace. Consumer spending and business investment have stalled, while residential investment has continued to fall." 

It said further “Conditions in money and credit markets remain extremely difficult. The committee noted that it was "unlikely that a normal volume of lending would be restored without further measures.”

Earlier, on Nov. 25 BoE Governor, Mervyn King had said that “close coordination” with the government is needed if the interest rate reaches zero and said the “most pressing” challenge facing policy makers is  getting financial institutions to resume lending.

Meanwhile, a report by UK mortgage lender Halifax on Thursday showed British house prices continued to plunge in November. The average price in November declined 2.6% from previous month. The average house price in November stood at 163,605 pounds ($242,446), down 14.9% and 2.6% from November 2007 and October 2008 respectively. This is the lowest level July 2005.

On Wednesday, a report showed the CIPS/Markit services PMI reading dropped to 40.1, the lowest since the record began in July 1996. The decline marks the seventh consecutive month of decreased activity.

On Thursday, Sweden's central bank, Riksbank also lowered its key interest rate by a record 175 basis points to 2% to bolster economy. It was the biggest rate cut since the Riksbank started using the repo rate as its key interest rate in June 1994.

New Zealand’s central bank cut its rate by record 1.5% points to 5%. It was its fourth cut since July. Alan Bollard, governor of New Zealand’s central bank, attributed the aggressive cut in interest rate to the “ongoing financial market turmoil and the marked deterioration in the outlook for global growth.” He added further “Activity in most of our trading partners is now expected to contract or grow only very slowly over the next few quarters,” he added, and “economic activity in New Zealand will be further constrained as a result.”

Bank Indonesia also axed its rate by 25 basis points to 9.25% from 9.5%.

On Monday, Reserve Bank of Australia lowered its benchmark interest rate by 100 basis points to a six and a half year low of 4.25%, thus extending the biggest round of reductions since 1991.

European stocks advanced in the afternoon trade. At 13:06 pm London time, the U.K. FTSE climbed 10.63 points or 0.25% to 4,180.59. The German DAX rose 65.79 points or 1.44% to 4.633.03 while French CAC was up 24.26 points or 0.77% at 3,190.91.