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Europe cuts rates in surprise move

The European Central Bank cut its main interest rate by 25 basis points to 1.25 percent on Thursday as the euro zone's worsening debt crisis outweighed the concern over persistently high inflation.

The ECB also reduced the interest rate on its deposit facility to 0.5 percent and the rate on the marginal lending facility to 2.0 percent.

The cut marked a change in policy course after the ECB increased its rates in July and April, when it became the first major central bank to hike after the intensification of the financial crisis. Markets are now looking for hints whether the ECB is preparing to cut rates again next month.

Attention will also focus on other changes in the central bank's policy after the change of guard, especially whether its government bond program will be boosted.

New European Central Bank head Mario Draghi is saying that Europe's debt crisis is slowing growth in the 17 countries that use the euro.

Draghi said that current market turbulence is "likely to dampen the pace of economic growth in the second half of the year and beyond."

He indicated a slowing economy reduced the threat of inflation.