The origin of the stimulus/task-induced signal changes in spin echo (SE) functional MRI (fMRI) at high magnetic fields is dynamic averaging due to diffusion in the presence of field gradients surrounding deoxyhemoglobin-containing microvasculature. The same mechanism is expected to be operative in stimulated echoes (STE). Compared to SE-fMRI, however, STEfMRI has the potential for larger diffusion weighting and consequently larger stimulus/task-induced signal changes as a result of an additional delay, the mixing time, T M . In the present study, functional signal changes were quantified for both primary echo (PRE) and STE as a function of echo and mixing time. The relative blood oxygenation level dependent (BOLD) signal changes in STE were larger than in PRE at the same echo time and increased with both mixing and echo time. The contrastto-noise ratio (CNR) of the STE, however, is close to the CNR of the PRE, indicating an increase of physiological noise with longer mixing times. In addition, the signal attenuation due to diffusion in the presence of magnetic field gradients near blood vessels was modeled using Monte Carlo simulations. Key words: stimulated echo; fMRI; transverse relaxation; T 2 ; dynamic averaging Gradient-echo (GE) echo-planar imaging (EPI) is commonly applied to probe neuronal activity with relatively high spatial and temporal resolution because this fast imaging method has a high signal-to-noise ratio (SNR) and exhibits large blood oxygenation level dependent (BOLD) signal changes. However, GE techniques are limited in their accuracy or specificity relative to the site of neuronal activity. In such functional magnetic resonance imaging (fMRI) experiments, the main mechanism causing BOLD signal changes is static dephasing, i.e., signal variation originating from phase differences between spins experiencing different magnetic fields near deoxyhemoglobincontaining blood vessels. As larger draining veins also contribute to the relative signal changes, the BOLD response can spread noticeably beyond the area of neuronal activity. Intravascular T 2 -changes, which are caused by spins diffusing in local field variations around and within deoxyhemoglobin-loaded red blood cells, add to the spatial blurring of the BOLD response.The BOLD signal variations are much more confined to the site of neuronal activity using moderately diffusionweighted spin echo (SE) imaging techniques. In these sequences, static dephasing is refocused and does not contribute to the signal change. The apparent T 2 is modulated through diffusion-induced dynamic averaging of the susceptibility gradients in the vicinity of capillaries and venules. Simulations and experiments demonstrated that T 2 -BOLD signal changes predominantly occur in the capillary bed (1,2). SE EPI is, therefore, assumed to be more specific to the site of neuronal activity. Specificity is further improved by mild diffusion-weighting to suppress intravascular signal contributions.SE-based imaging techniques, however, are hampered by the fact that the stimulu...