UPDATE 3-Swedish c.bank slashes key rate by record 175 bps

(Adds comments, background, interest rate history)

By Sarah Edmonds and Anna Ringstrom

STOCKHOLM, Dec 4 (Reuters) - Sweden's central bank slashed its main interest rate by a record 175 basis points to 2.0 percent on Thursday, a far bolder move than expected and one that economists said was sorely needed to revive the economy.

The size of the cut prompted immediate speculation that the European Central Bank and Bank of England would make outsized rate cuts as monetary authorities across the world try to prevent the global economy from sliding deep into recession.

The Riksbank said it expected the repo rate to stay at this new level over the coming year.

"It sets the tone for the rest of the day," said Audrey Childe-Freeman, senior currency strategist at Brown Brothers Harriman in London. "It confirms that central banks are very aggressive at this stage and the Riksbank is no exception."

The Riksbank said in a statement there had been an "unexpectedly rapid and clear deterioration in economic activity since October".

Markets were braced for a large reduction after the Riksbank said on Monday it was bringing forward its meeting by nearly two weeks. That, economists said, suggested the central bank saw the gravity of the situation and indicated a deep cut was in store.

But the move was far more dramatic than envisaged -- a Reuters poll this week showed most economists believed rates would fall 75 to 100 basis points.

"This was a very powerful move, bigger than we had expected, and it had a big impact in the debt market," said Knut Hallberg, economist at Swedbank.

"We see this as extremely positive and have argued that it is necessary and gives the Swedish economy an important boost."

While there have been bigger policy changes in Swedish history, this was the biggest cut in the repo rate since it was introduced in 1994.

LOWER RATE NEEDED

Economists did not rule out even further cuts.

"The Riksbank has changed stance so many times over the last half year that markets should not be that preoccupied by the low-point (in the central bank's own forecast)," said Henrik Mitleman of SEB.