Sterling slides to 5-1/2 wk low vs euro; weak data weighs

* Euro hits 5-1/2 wk high vs pound of 92.47 pence EURGBP=

* Stg gains vs broadly weaker dlr, but falls vs FX basket

* UK industrial output posts biggest annual fall since 1981

* Surveys show weak UK retail sales, house prices

By Jessica Mortimer

LONDON, March 10 (Reuters) - Sterling fell sharply against the euro, which hit a new 5-1/2 week high against the pound on Tuesday as more evidence of a deteriorating UK economy weighed on the UK currency.

Against the dollar, the pound recovered after steep falls took it to a six-week low on Monday, but analysts said this was the result of broad dollar weakness rather than independent sterling strength.

In tandem with a rally in equity markets worldwide, the UK's FTSE 100 index .FTSE jumped by over 4 percent, helping to stem flows into the perceived safety of the U.S. dollar and enabling the pound to gain.

However, the sharp losses against the euro -- the currency of the UK's main trading partner -- took sterling to its lowest level on a trade-weighted basis since the end of January, pressured by a fresh bout of bad news on the UK economy.

Figures showed British industrial output fell more than twice as fast as expected in January and shrank at its fastest annual pace since January 1981 [ID:nONS004104].

Meanwhile, surveys overnight also showed a 1.8 percent fall in UK retail sales during February [ID:nLAG003283], more than reversing January's 1.1 percent rise, alongside evidence that house price falls accelerated [ID:nL9582525].

"We've had some stabilisation in UK macroeconomic data recently, but it seems we're heading back to reality in terms of retail sales, and the industrial production figures looked awful," CMC Markets chief market strategist Ashraf Laidi said.

"People have been looking to the equity market rally as an excuse to sell the dollar and sterling has gone up versus the dollar as a result, but it is being dragged down against the euro," he added.

After rising over 2 percent on Monday, the euro extended gains against sterling to hit another 5-1/2 week high of 92.47 pence EURGBP=. At 1533 GMT it was trading up 0.6 percent on the day at 92.05 pence.

Sharp falls against the euro also took the pound to a 5-1/2 week low against a basket of currencies =GBP of 75.8.

Against the dollar, however, sterling rose 0.7 percent GBP= to $1.3871, though it remained not far above a six-week low of $1.3741 hit on Monday.

CMC's Laidi said sterling broke below a very big support level of $1.3850 on Monday and noted that it is trading not far above that level now.

"If cable fails to close above $1.3850 by the end of New York trade it will be an ominous sign for sterling - a sign that it is failing to garner upside technical support despite a big improvement in risk appetite," he said.

MORE WEAKNESS AHEAD

On Monday, sterling posted its biggest falls in a month against both the dollar and the euro.

An announcement by Lloyds Banking Group (LLOY.L) that the government would get a stake of up to 77 percent helped trigger the sharp drop, and commentators believe banking and economic woes mean the outlook remains negative for sterling.

"It seems as though everything that is wrong in the world is considered to be more exaggerated and worse in the UK," a London-based trader said.

Investors meanwhile remain jittery about how effective the unconventional monetary stimulus measures announced by the Bank of England last week will be in helping the economy to recover.

Overnight, an official from the Government of Singapore Investment Corp (GIC) said he would avoid sterling and the dollar "like the plague" because the UK and the U.S. may be forced to monetise their debt by printing money. [ID:nSIN244381].

(Reporting by Jessica Mortimer; Editing by Victoria Main)