CORRECTED - Sterling jumps, UK gilts tumble after BoE ups QE

(Corrects gilt/Bund spread in 16th paragraph)

LONDON, Nov 5 (Reuters) - Sterling jumped and UK gilts tumbled on Thursday after the Bank of England expanded its quantitative easing programme by 25 billion pounds, allaying some concerns about a bigger increase.

The BoE also left interest rates unchanged at a record low of 0.5 percent, as expected. [ID:nLAC003525

A Reuters poll had shown that two-thirds of analysts had predicted the BoE would expand its asset-buying scheme, with the consensus being an increase of 25 billion pounds.

Some in the market had raised the possibility that the central bank may extend the extend the programme by 50 billion pounds while,others had said it might halt it.

Sterling jumped more than a full U.S. cent to $1.6620, hitting its highest in two weeks.

The euro fell more than half a pence to the day's low of 89.33 pence.

"Sterling has gained on this because people were thinking they might do a little more than 25 billion, but I think the statement is overall pretty balanced," said Paul Robson, currency strategist at RBS (LSE: RBS.L - news) .

Analysts said the increase was likely to be the last.

The December gilt future tumbled more than 50 ticks to stand at 116.49 by 1206 GMT, having stood at 117.31 ahead of the decision.

The 10-year gilt yield shot up more than 7 basis points to 3.86 percent, testing its highest level in three months.

Short sterling futures <0#FSS:> plummeted to stand between one and three ticks lower across the strip, having been as much as eight ticks higher beforehand.

Britain's FTSE 100 slipped slightly immediately after the decision, but recovered to levels seen just before the announcement. The index was down 0.6 percent by 1204 GMT at 5,078.45.

"When you see the Bank of England continuing to ease it confirms the view the central banks are more exercised by deflation risks than inflation and they are a long way from hiking rates," said Bernard McAlinden, strategist at NCB Stockbrokers.

Euro zone government futures hit a session low, taking a cue from the sell-off in UK government debt.

The December 10-year Bund future marked a session low of 121.02 after the BoE news and was last seen down 19 ticks on the day at 121.06.

Bunds played catch-up with UK gilts, as the 10-year yield spread widened by eight basis points to 52 bps .

Late 2010 Euribor futures contracts pared gains after the BoE announcement. The Sept 2010 contract and was last seen up 0.5 bps at 98.385.

(Reporting by London Markets Team)