The European Central Bank and Bank of England both kept interest rates unchanged on Thursday but the latter said it would pump more money into the UK economy by buying bonds, driving sterling lower.

Equity markets, meanwhile, were carrying on with their five month rally, driven higher by positive earnings news. Wall Street looked set to join in with mild gains.

While there was little tension in the markets over actual rate changes from the ECB and BoE, investors are keenly looking for signs of optimism about the economic outlook and moves to add more stimulus.

They got some of the latter from the BoE, which surprised markets by extending its quantitative easing program, raising the size of its bond purchase scheme to an unexpectedly large 175 billion pounds ($297 billion) from 125 billion pounds.

The BoE said the UK economy had been suffering a deeper recession than expected, though there were signs it was bottoming out and conditions in Britain's main export markets were improving.

Stock markets were generally looking past the central bank meetings at company earnings. The MSCI all-country world index <.MIWD00000PUS> was up 0.4 percent for a nearly 11 percent gain over July and August so far.

Europe's FTSEurofirst 300 <.FTEU3> gained more than 1 percent. Belgian banking and insurance group KBC returned to net profit in the second quarter and Commerzbank beat analyst expectations thanks to lower writedowns for problem assets.

The European benchmark index is up more than 45 percent from its lifetime low of March 9.

The 200-day moving averages are turning up, a signal that it's a bull market, said Bernard McAlinden, investment strategist at NCB Stockbrokers, in Dublin. But ... in the near term, there is vulnerability to some kind of correction, as it looks stretched. Japan's Nikkei <.N225> closed up 1.3 percent.

BANK SURPRISE

Sterling fell sharply against the dollar and gilt futures soared after the Bank of England move.

That they expanded quantitative easing by 50 billion pounds is more dovish than expected, so sterling is weakening accordingly, said Daragh Maher, senior currency strategist at Calyon in London.

The pound was down 0.8 percent at $1.6844. The euro was down 0.2 percent at $1.4405.

The 10-year Bund yielded 3.328 percent, down 2 basis points.

(Additional reporting by Brian Gorman and Tamawa Desai; Editing by Ruth Pitchford)

United kingdom Quantitative easing