LONDON (Reuters) -British finance minister Kwasi Kwarteng on Friday unveiled a broad set of measures aimed at cutting taxes and energy bills for households and businesses to try to drive economic growth.

UK gilt yields surged as the UK Debt Management Office laid out plans for additional issuance to fund the planned spending, although the pound cut earlier losses and pulled back from a 37-year low against the dollar.

Britain's blue-chip stocks remained in the red, in line with a broader decline across the equities market.

MARKET REACTION:

STOCKS: The FTSE 100 was last down 0.9% on the day, having traded around two-and-a-half month lows, but not all sectors were mired in the red. British homebuilders and household goods makers hit session highs, buoyed by the prospect of consumers getting tax breaks.

BONDS: Two-year gilt yields rose nearly 25 basis points to 3.76%, around their highest since the financial crisis in 2008/2009.

FOREX: Sterling was down 0.5% on the day at around $1.1195, but managed to cut some earlier losses. It traded earlier at a session low of $1.11520, its weakest since mid-1985.

COMMENTS:

MICHAEL BROWN, HEAD OF MARKET INTELLIGENCE, CAXTON, LONDON:

"It really is that kind of rabbit out of the hat at the end, that not only is the additional rate going to be completely abolished, but also the cuts to the basic rate of income tax are going to be brought forward a year (which moved sterling). That is pretty significant."

"The move in the pound is a function of two things. One is the diminishing downside effects on the growth outlook. People are going to have more money to spend."

"Then there's the fact that gilt yields are up 20 or so basis points after the announcement. That is because borrowing is going to have to increase, but it's narrowing the gap between places like the U.S."

"However, I don't see this as any sort of longer-term signal to go long sterling."

TREVOR GREETHAM, HEAD OF MULTI-ASSET, ROYAL LONDON, LONDON:]

"Arguably, a significant, unfunded fiscal stimulus package like this would have made economic sense after the deflationary global financial crisis, when borrowing costs were low and private sector balance sheets were deleveraging. 

"Now with spare capacity non-existent, inflation at a forty year high and the Bank of England trying to cool things down, we are likely to see a policy tug of war reminiscent of the stop-go 1970s. Investors should be prepared for a bumpy ride."

(Reporting by London Markets Team; Editing by Dhara Ranasinghe and Amanda Cooper)