LONDON, Sept 21 (Reuters) - The Bank of England on Thursday left interest rates unchanged, breaking a long run of rate rises as the British economy slowed, sending the pound to a six-month low and giving London-listed stocks a boost.

The pound dropped by as much as 0.9% to its lowest since late March, while gilt yields showed little change and London-listed stocks rallied, as rate-sensitive areas of the equity market, such as real estate shares and homebuilders, bounced.

Investors had already rushed on Wednesday to reel in their bets on further UK rate rises after data showed UK inflation cooled surprisingly quickly in August.

MARKET REACTION:

FOREX: Sterling was last down 0.7% at $1.2255, compared with $1.22935 earlier in the day. Against the euro , the pound was down 0.6% at 86.89 pence, having traded around 86.70 pence before the decision.

MONEY MARKETS: Interest rate futures showed traders believe there is a 70% chance the central bank will leave rates unchanged at its next meeting in November, compared with around 50/50 before the decision. Two-year gilts, the most sensitive to shifts in rate expectations, showed little immediate reaction, and were up 5 basis points on the day at 4.887% versus 4.894% earlier.

STOCKS: The blue-chip FTSE 100 erased most of the day's losses to trade 0.1% down, compared with a 0.7% fall earlier on.

COMMENTS:

RICHARD GARLAND, CHIEF INVESTMENT STRATEGIST AT OMNIS INVESTMENTS, LONDON:

"The Bank appears to have concluded that monetary policy is tight enough already to stem strong wage growth given weakness emerging elsewhere in the labour market, sufficient to bring inflation back to target."

"This week’s better-than-expected inflation print possibly helped with the BoE’s decision to not hike today. There were doubtless conflicting views but in the end the doves’ observation that previous tightening has still to affect the economy – already weakening – seems to have won out."

"The MPC still refers to its flexibility to react should things change, but the chances are this could be the peak in this UK interest rate cycle."

GILES COGHLAN, CHIEF MARKET ANALYST CONSULTING FOR HYCM, LONDON:

"There were a lot of moving parts for the Bank of England (BoE) to contend with going into today's decision. But, with yesterday's core print still three times higher than the BoE’s target and wage growth remaining strong, the BoE clearly wants to stamp inflation into the ground for good."

"However, there is a risk that the ‘lag effect’ on interest rate hikes means that today’s decision may not be felt for another 9 to 12 months." As such, with economic growth already faltering and core inflation remaining high, today’s hike runs the risk of over-tightening the economy and inducing a period of stagflation further down the line."

"For investors, they have been expecting the BoE to signal a lower path for rates ahead so the pound's reaction may be muted, especially after CPI miss yesterday which weakened the pound further going into today's meeting. However, the pound could slide further should the markets foresee stagflation ahead and perceive a BoE policy mistake." (Reporting by EMEA Markets Team; Editing by Amanda Cooper and Dhara Ranasinghe)