* Cbank cuts key rate by 10 bps to 1.55 pct
* Narrows spread to ECB rate by 10 pbs to 55 bps
* Analysts say spread may narrow more amid better sentiment
(Adds detail, analyst comments)
By Anna Ringstrom and Rasmus Jorgensen
COPENHAGEN, June 4 (Reuters) - Denmark's central bank cut its key lending interest rate by 10 basis points on Thursday, after the European Central Bank kept its key rate unchanged earlier in the day.
The Nationalbank, which operates a fixed exchange rate policy against the euro, cut its key lending rate to 1.55 percent, a new historic low and narrowing the spread over the ECB rate by 10 basis points to 55 points.
"The continued reduction of the interest rate gap is of course good news, and testifies to the fact that the situation is improving but it is still not normalised," said Jes Asmussen, economist at Handelsbanken.
Until May 2008 Danish rates mirrored euro zone rate changes, differing only by a 0.25 percentage point premium. But as investors last year fled to bigger and safer markets amid the deepening global crisis, the Nationalbank fought to defend the crown by widening the premium substantially.
Investors have returned to Danish markets this year, easing pressure on the crown and allowing the central bank to narrow the spread from a 175 basis point peak in December.
Thursday's narrowing had been widely expected, not least after data showed on Wednesday that Denmark's foreign exchange reserves rose more than expected in May. [ID:nL396163]
"The reason the Nationalbank cut rates today although ECB as expected kept its rates unchanged is that the currency reserve has grown," said Steen Bocian, chief economist at Danske Bank.
"We expect the Nationalbank to lower rates further in the coming months so that we by the end of the year have an interest rate of 1.35 percent."
Handelsbanken's Asmussen said he expected the spread to narrow to 0.4 percentage points.
"It is however difficult to say when the next narrowing will take place. One should remember times are still very uncertain. A worsening of the market sentiment cannot be ruled out, and can slow down further reductions of the interest rate spread."
The Nationalbank on Thursday introduced a spread between its lending rate and its certificate of deposit rate. The two have historically followed each other.
"The purpose is to give the banks and mortgage-credit institutes an incentive to a higher degree to settle differences in liquidity via the money market rather than using the facilities of Danmarks Nationalbank," it said.
The bank cut the certificate of deposit rate to 20 basis points to 1.45 percent. (Editing by Andy Bruce)