Sterling recovers from lows, next BoE move eyed

LONDON, Dec 10 (Reuters) - Sterling rose versus the dollar and euro on Monday, with investors taking profits after a fall sustained by the UK currency last week in the run up to a Bank of England interest rate cut.

The BoE cut rates by 25 basis points to 5.50 percent on Thursday, a decision which was foreshadowed by weak housing and service sector data earlier in the week.

Fifty-five out of 62 economists polled by Reuters last week forecast another cut by the end of the first quarter [BOE/INT]. But with the U.S. Federal Reserve set to cut rates by at least 25 basis points on Tuesday, more easing from the BoE would not necessarily dent sterling's relative yield appeal.

Data released on Monday gave further evidence of inflationary pressures in the UK economy -- a factor which may make the BoE more reluctant to cut rates in the future.

Annual producer output price inflation surged to a 16-year high in November and house prices, according to the government's measure, rose by 11.3 percent in October year-on-year, up from 10.8 percent in September.

"The data has been slightly stronger than expected but nothing massive. Sterling has weakened over the previous week or two and this is a bit of a short-term bounce back," said Paul Robinson, currency strategist at Barclays Capital.

"Over the next couple of months (the focus) is when they (BoE) will cut again. We expect it in February," he said.

By 1453 GMT, sterling was up 0.7 percent against a broadly weaker dollar at $2.0461 <GBP=>. The euro was down 0.2 percent at 71.98 pence <EURGBP=>, off 4-1/2 year peaks at 72.39 pence scaled the previous week.

Some traders also said sterling was getting a bit of a boost from merger and acquisition-related flows.

Britain's Daily Telegraph newspaper reported on Monday that investment group Blackstone (BX.N: Quote, Profile, Research) is planning a counterbid for Rio Tinto (RIO.L: Quote, Profile, Research). The miner has already rejected a suit from rival BHP Billiton (BLT.L: Quote, Profile, Research). See [ID:nSYD220474]. (Reporting by Toni Vorobyova, editing by Mike Peacock)