LONDON -- Global equities stabilized on Thursday after hitting a two-year low while the dollar trimmed recent gains ahead of European interest rate decisions and the British pound touched a trade-weighted 12-year low.

MSCI's main world stock index was flat to slightly weaker. It dropped to its lowest level since September 2006 late on Wednesday.

The European Central Bank and Bank of England were both meeting to discuss monetary policy, although both were expected to leave rates steady at 4.25 percent and 5.0 percent, respectively.

Differing economic and rate prospects have been driving the dollar higher in recent weeks as the US-triggered economic downturn spreads to the euro zone and Britain.

The dollar, however, slipped on Thursday against a basket of major currencies and was weaker against both the euro and pound.

The euro brought $1.4532, a gain of around 0.3 percent, and the pound fetched $1.7832, a gain of about half a percent.

Britain's currency woes continued, however, as sterling hit a 12-year low against a trade-weighted basket of currencies.

"Sterling still has a downside, data has been poor, and people are speculating that the BoE will cut rates this year," said Paul Robson, strategist at RBS.

"It's the same sterling weakness story from yesterday, the day before, and for the whole year, as a matter of fact."

STOCK WOES

Downbeat sentiment continued to play on world equity markets.

The FTSEurofirst 300 index of pan-European shares was down 0.1 percent. Japan's Nikkei average earlier fell 1.0 percent to a five-month low.

"There are many worrying factors in the market, such as the global economic outlook and the credit crunch."" said Katsuhiko Kodama, senior strategist at Toyo Securities.

Oil prices firmed slightly to around $109.50 a barrel as traders weighed concerns over slowing demand from major consumer countries against further hurricane threats to the US oil sector.

Prices have tumbled by more than $6 since Friday after Hurricane Gustav, which swept through the major oil-producing Gulf of Mexico and made landfall near New Orleans on Monday, turned out to be less destructive than feared.

"There are still concerns over supply issues. A lot of the Gulf of Mexico capacity was shut down and some refineries are still closed. We don't know how long they'll remain offline," said Gerard Rigby, an analyst at Fuel First Consulting in Sydney.

Euro zone government bond yields, which move inversely to prices, rose as investors braced for the ECB rate decision.

Two-year Schatz yielded 4.186 percent, 6 basis points more than in late Wednesday trade, while 10-year Bund yields were also 6 basis points higher at 4.197 percent.

"The post-meeting press conference will be watched closely for any signs of a shift in the ECB's hawkish rhetoric in response to rapidly slowing economic activity across the euro zone," said Elwin de Groot, economist at Rabobank.