* Sterling falls sharply after BoE's King comments
* King says open-minded on QE, stresses weak pound benefits
* Pound loses more than a cent vs dlr, above 90 pence/euro
(Updates with late prices, fresh comments)
By George Matlock
LONDON, Nov 11 (Reuters) - Sterling fell sharply against the euro and the dollar on Wednesday after Governor Mervyn King said the Bank of England was open-minded about pumping more money into the economy and highlighted the benefits of a weak pound.
King spoke after the release of the bank's quarterly Inflation Report, which showed UK consumer prices will be below its 2 percent target in two years.
The central bank last week increased its quantitative easing (QE) programme, under which it buys assets to inject liquidity into the economy, by 25 billion pounds, in what many in the market said was likely to be a final top-up.
But King said policymakers had "a completely open mind" on whether to make further increases to the programme, which has a 200 billion pound target and has helped weaken sterling.
Comments by the BoE chief that a weaker sterling would help rebalance the economy away from exports and that UK growth was unlikely to return to pre-crisis levels for "a considerable period" also weighed on the pound.
"(Sterling's) fortunes were not helped by Governor King's observation that a weak pound would help in the process of rebalancing growth towards exports," said Daragh Maher, deputy head of global FX strategy at Calyon Credit Agricole CIB.
"Yet the currency reaction has to be balanced against a report which is somewhat more upbeat in terms of its activity projections, where the inflation shortfall is narrower than before, and where the risks are now balanced rather than to the downside. The detail is rather less sterling-negative than the initial headlines suggested," he added.
Rabobank strategist Jeremy Stretch said the market's interpretation was that the central bank was talking the pound down.
Sterling tumbled by more than a cent against the dollar after King's comments. Later it hit a session low of $1.6551.
By 16 GMT, it was down more than 1 percent at $1.6567.
The euro also jumped more than one percent on the day to a session high of 90.50 pence from around 89.67 pence previously. It last traded up 0.9 percent at 90.38 pence.
"Euro sterling rallied on the best of both worlds, prompted by broad dollar weakness (always a euro-positive) and dovish comments from the Bank of England," said Ashraf Laidi, chief market strategist at CMC Markets in London.
"As the ECB reviews whether it will continue its 12-month tenders while the BoE expands QE, this looks supportive for euro sterling," he added.
These broad falls took the pound's trade-weighted index to an eight-day low of 80.3.
Sterling has come under heavy pressure recently, falling close to $1.57 and 94 pence per euro in October, on the view UK interest rates will stay low for longer than those of other countries and on concerns about a deteriorating fiscal position.
"Sterling is oversold after the (BoE) press conference and we may see that if euro/sterling goes to 90.5 this is a good level to sell," Rabobank's Stretch said.
CRUMBS OF COMFORT?
The BoE's report forecast growth increasing slightly more than previously expected to around 3.75 percent at the end of 2011, briefly pushing the pound to a session high versus the dollar of $1.6799.
Earlier, sterling gained a lift from data showing UK unemployment rising by less than forecast. (Additional reporting by Jessica Mortimer, editing by Nigel Stephenson)