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By Richard Hubbard
LONDON (Reuters) - Pending decisions by the European Central Bank and Bank of England dominated financial markets on Thursday, with investors eyeing the possibility of more money being pumped into an already liquid global economy.
European shares ticked higher. A recent sell-off in the euro took a pause. Britain's pound fell to a 2-1/2 year low below $1.50.
In the bond market, a successful Spanish sale of 5.0 billion euros in new debt eased concerns about the impact of the political deadlock in Italy and showed the ECB's promise to support struggling countries continued to underpin demand.
Of the two major banks, Britain's England was seen as the most likely to announce policy easing, although whether it opts for more bond-buying was finely balanced.
The euro was slightly firmer but said to be vulnerable to further selling if, as expected, the ECB leaves rates unchanged after its policy meeting but then signals at a news conference which follows the decision that a future cut is likely .
The German Bund future eased 11 ticks at 145.01 after the Spanish bond sale, while the premium demanded by investors to hold Spanish debt rather than safer German bonds eased.
Commodity markets were mostly steady ahead of the outcome of the central bank meetings with Brent crude up 12 cents at $111.18 a barrel. U.S. crude rose 27 cents to $90.70.
Ahead of the ECB decision due at 1245 GMT, the euro had gained 0.4 percent at $1.3023 but dealers said it was susceptible to losses and could retest last week's near three-month low of $1.2966.
"We don't expect anything from the ECB but a small minority is looking for a rate cut today and that is partially built into the price," said Adam Cole, global head of FX strategy at RBC Capital Markets.
"If the ECB stays on hold, we could probably see a small bounce in the euro."
The pan-European FTSEurofirst 300 index gained about 0.1 percent to 1,187.16 points, close to its 4-1/2 year intraday high of 1,193.35 points hit on Wednesday.
Frankfurt's DAX, London's FTSE 100 and Paris's CAC-40 were between 0.3 and 0.6 percent higher.
The overall looser policy outlook expected from the two major world central banks, along with signs Japan is about to step up aggressive monetary easing, is contrasting with a change in the outlook for the U.S. Federal Reserve
"The Fed is still pumping in $85 billion a month at the moment," said Daragh Maher, currency strategist at HSBC. "But the latest data has forced the idea that the U.S. economy is improving and therefore, going forward, the direction of policy could change."
Investors have been revising their outlook for U.S. growth after a report showed private sector employers are hiring at a faster rate than expected, pointing to lower unemployment, a key condition for the Fed to wind up its massive stimulus programme.
The jobs growth which followed similarly strong reads on housing and the services sector activity has also bolstered hopes that Friday's key non-farm payrolls data will surprise on the upside and offset fears that government spending cut and tax rises would damage the recovery.
Despite weak economic performances in Europe, the UK and Japan, the better outlook for the U.S. is maintaining support for stocks, leaving the MSCI world equity index little changed on the day ahead of the U.S. open but close to its best levels since mid-2008.
Wall Street shares have been the main beneficiary. The key Dow Jones Industrial index closed at a fresh record high on Wednesday of to 14,296.24 points. Stock index futures point to another day of gains on Thursday.
American markets have also been drawing support from signs the U.S. Congress is about to pass a measure to keep funding the government until the end of September, easing the prospect of an immediate fiscal crisis.
(Additional reporting by Marc Jones.; Editing by Jeremy Gaunt)