* ECB, BoE expected to lower rates by at least 50 bps
* Nikkei drops 7.1 pct, sparks yen carry trade unwinding
By Rika Otsuka
TOKYO, Nov 6 (Reuters) - The euro and sterling fell against the dollar on Thursday, pressured by expectations that the European Central Bank and the Bank of England will cut interest rates to prevent their economies from deteriorating further.
The yen firmed against higher-yielding currencies as fears of a global recession prompted investors to unwind risky carry trades, in which investors use the low-yielding yen to fund purchases of assets offering higher returns elsewhere.
Tokyo's Nikkei share average fell 7.1 percent, also prompting Japanese fund managers to dump overseas assets.
Data on Wednesday showed the euro zone service sector slumping to a fresh decade low, adding to the view that the ECB will cut interest rates by 50 basis points or more from the current 3.75 percent level in its rate decision on Thursday.
Investors also anticipate the BoE will cut interest rates -- now at 4.5 percent -- by at least half a percentage point.
Such moves would come after the ECB and BoE cut interest rates by 50 basis points last month in coordinated action.
"There is no doubt that economic figures are poor around the world," said Hideki Amikura, deputy general manager of forex at Nomura Trust Bank.
"Investors are paying closer attention to fundamentals of each economy now as the forex market has started to calm a bit after unusually high volatility in October," Amikura said.
The euro fell 0.7 percent against the dollar from late U.S. trading on Wednesday to $1.2867.
The European single currency hit a 2-½ year trough of $1.2329 on trading platform EBS late last month as concerns about the worsening global economy and market turmoil prompted investors to seek the dollar -- the world's most liquid currency.
Sterling slid 0.4 percent to $1.5834.
The yen rose broadly, with the dollar dipping 0.1 percent to 97.81 yen and the euro dropping 0.8 percent to 125.85 yen.
Although most market participants bet the ECB and BoE will each make rate cuts of half a percentage point, many believe more hefty rate reductions are possible.
Market players have the impression that the ECB has fallen behind the curve on monetary policy easing given its rate hike of 25 basis points in July, said Masaki Fukui, a senior market economist at Mizuho Corporate Bank.
"One focal point in the market is whether the ECB could erase such an image with an aggressive move," Fukui said. (Additional reporting by Kaori Kaneko; Editing by Michael Watson)