LONDON, March 6 (Reuters) - The pound extended a slide

against the euro on Thursday, dropping to its weakest level

since January as the single currency benefited from an improving

growth outlook after Germany announced plans to massively boost

fiscal spending.

Sterling was last at 83.85 pence per euro, down

about 0.2% on the day. It's dropped about 1.5% this week, and is

on course for its biggest one-week fall since January 2023.

"It's all to do with the broad-based euro optimism that

we've seen with this shift in fiscal policy in Germany," said

Kirstine Kundby-Nielsen, FX analyst at Danske Bank.

On Tuesday, the parties looking to form the next government

of Germany, Europe's largest and the world's third largest

economy, agreed to loosen fiscal rules and create a 500 billion

euro special fund to boost infrastructure.

That sent the euro surging against major peers and pushed

bond yields higher on expectations for more

borrowing.

Major investment banks have been quick to lift their growth

forecasts for Germany and the euro zone bloc, while some now

expect fewer interest rate cuts from the European Central Bank.

The ECB announces policy later on Thursday and is widely

expected to lower its deposit rate by 25 basis points, the sixth

reduction in the easing cycle.

Bank of England rate setters, meanwhile, are generally

sticking to their "careful" approach to interest rate cuts,

having lowered borrowing costs for the third time since August

last month.

Against the dollar, the pound was down 0.1%, having

earlier risen to its highest in four months at $1.2924.

Britain's construction sector contracted sharply last month,

a survey showed on Thursday.

The preliminary reading of the S&P Global/CIPS UK

Construction Purchasing Managers' Index fell to 44.6 last month

from January's 48.1, its weakest level since May 2020.

"Rocketing uncertainty around global trade policy, rising

materials prices, and the looming payrolls tax hike in April all

conspired to further sap confidence," said Elliott Jordan-Doak,

senior UK economist at Pantheon Macroeconomics.

The all-sector PMI, which combines services, manufacturing

and construction, fell to a 16-month low of 50, down from 50.3

in January.