LONDON, Oct 30 (Reuters) - British gilts slid on Thursday as the Federal Reserve's decision to cut interest rates and open swap lines to four developing economies encouraged investors to venture back into riskier assets.

A disappointing gilt auction also weighed on the market, reinforcing supply concerns as government spending increases in response to the economic downturn.

The 4.0 billion pound ($6.41 billion) sale of gilts due 2016 -- the second biggest gilt auction on record -- was covered 1.61 times with a relatively large tail of 0.8 basis points. For details, see.

The Fed cut U.S. rates by 50 basis points to 1 percent and signalled there could be further cuts to come.

It also opened up dollar liquidity aid beyond traditional markets, announcing four new $30 billion currency swap lines with Brazil, Mexico, South Korea and Singapore.

Europe's FTSEurofirst 300 index of leading shares was up more than 2 percent by 1145 GMT, while the December gilt future was down 83 ticks on the day at 111.52, underperforming the equivalent Bund future.

"Risk appetite is creeping back into the market," said Christian Lawrence, bond strategist at RBC. "Stock markets are up and all major bonds markets are selling off."

Short-dated gilts continued to outperform longer-dated issues. Ten-year gilt yields rose 10 basis points to 4.50 percent while two-year gilt yields fell two basis points to 3.03 percent, moving within sight of historic lows hit in the previous session.

In the UK, a survey by mortgage lender Nationwide showed house prices fell 1.4 percent on the month in October, bringing the annual decline to 14.6 percent, the biggest on record. See .

The BoE is widely expected to cut interest rates by at least half a percentage point next week, following an emergency cut to 4.5 percent earlier this month. Money markets show investors are betting rates could fall to 2.5 percent or lower by this time next year.

Speaking on Wednesday, BoE policymaker David Blanchflower said rates would need to be cut "significantly and quickly" to avoid a deep recession. See.

"There's a lot priced in and there's room for disappointment next week," said a London-based trader. "For this coming meeting, we've got something like 65 basis points of cuts priced in. I can only see them doing 50."