Solicitors In - Overseas Currency Watch

Sterling up vs softer dollar; falls vs euro

* Sterling up 0.2 percent at $1.6010 GBP=

* Euro up 0.8 pct at 89.92 pence EURGBP=R

* BoE minutes, weak GDP number weigh on sterling

By Tamawa Desai

LONDON, Dec 24 (Reuters) - Sterling rose against a broadly softer dollar on Thursday, clawing back some ground after hitting two-month lows earlier in the week, but extended losses against the euro in holiday-thinned trade.

Weaker-than-expected U.S. housing data on Wednesday cut a dollar rally short, while buying of the U.S. currency due to year-end positioning had likely ended, traders said.

"Most market players have finished their pre-Christmas trading yesterday, and dollar repatriation has run its course. So we're seeing some buying back of euro and sterling against the dollar," one trader said.

But higher U.S. bond yields were likely to underpin the greenback. The spread between 2- and 10-year Treasury yields steepened to historic highs this week, on expectations for stronger U.S. growth.

"If this steepening continues into the new year, it could further boost the dollar," the trader said.

By 1135 GMT, sterling was up 0.2 percent at $1.6010 GBP=D4 after touching a session high of $1.6023. A next target could be a break above the 200-day moving average around $1.6025, traders said. The euro was up 0.8 percent at 89.92 pence EURGBP=D4 after briefly rising to 90.11 pence, its highest since Dec. 14, according to Reuters charts.

Sterling has been weighed down this week since a disappointing revision to third quarter UK growth figures, and as minutes from the latest Bank of England policy meeting were perceived as leaving the door open to further monetary easing.

"Sentiment towards sterling is still overwhelmingly negative. If there are any crowded trades out there it's that people are very short of sterling," said Adam Cole, global head of FX strategy at RBC Capital Markets.

"But it is difficult to see any catalyst for any correction, even though sterling is historically very cheap."

Trade-weighted sterling was last at 79.7 =GBP, its lowest since Dec. 11.

The BoE's Monetary Policy Committee voted unanimously in December to keep interest rates at 0.5 percent and maintain the 200 billion pound quantitative easing programme, as expected. [ID:nLDE5BM0JP]

A Reuters poll this week showed economists almost unanimous in expecting the BoE to leave its QE programme capped at its current level. [ID:nLAG006010]

The programme, under which the central bank purchases assets to pump cash into the economy, is scheduled to be completed before the BoE publishes its next inflation forecasts in February.

A majority of those polled also do not expect the BoE to raise rates until the fourth quarter of 2010 when they see them climbing to one percent.

(Additional reporting by Jessica Mortimer; editing by Nigel Stephenson)

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Article Reference: uk.reuters .com/article/ idUKLDE5BN0DT20091224? pageNumber=3&virtualBrandChannel=0

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