Sterling hits 1-month low vs euro

A pile of one pound coins is seen in central London June 17, 2008.

LONDON (Reuters) - Sterling hit a one-month low against the euro on Monday after an unexpected fall in British consumer confidence underlined weakness in the domestic economy.

The pound also slipped against the dollar after earlier gaining on the view that Dubai may have avoided the worst of its debt-related problems, prompting some demand for currencies considered to be higher risk.

Analysts said overall demand for sterling may remain sluggish amid evidence that the UK economy is struggling.

"There are still question marks about the UK economy and the consumer confidence figures are helping to keep sterling weak," said Neil Rumpeltin, currency strategist at Nomura in London.

"The UK economy remains the laggard of the G7 nations, and the data is just another reminder of this."

A monthly GfK NOP survey showed its UK consumer confidence index fell to -17 in November from -13 in October, below a Reuters forecast for -11 and marking the first fall since January.

By 2:43 p.m. British time, the euro had risen half a percent on the day to 91.38 pence, its highest since late October.

Sterling traded unchanged on the day at $1.6477, retreating from a climb as high as $1.6593 earlier in the day. The UK currency had fallen as low as $1.6252 on Friday, hitting its weakest in more than three weeks after Dubai's debt shock.

The pound pulled back on Monday after it was unable to climb into the $1.66 region due to technical resistance, with the 21-day moving average hovering around $1.6610 and the 14-day moving average around $1.6625.

"We really need to get above $1.66 to get bullish on sterling," said Kenneth Broux, market economist at Lloyds TSB in London.

Market participants showed little reaction to data on Monday which showed a modest rise in UK house prices in November.

Other figures showed a fall in UK net consumer credit in October as consumers repaid the highest amount of unsecured credit on record last month. Data also showed a rise in mortgage lending and approvals in October.

DUBAI CONCERNS

A UAE central bank pledge to provide support to Dubai banks quelled some concerns about the health of the emirate's economy. Dubai's appeal late last week for more time to repay billions of dollars in debt repay debts shook confidence in global markets.

Concerns about Dubai had stung sterling late last week, given UK banks have large investments in the region. The fragile financial sector is one of the main drivers of the British economy.

While analysts said these issues may have subsided, some said any signs of a deepening in the crisis could knock sterling again.

The pound was also unlikely to rise significantly in the near term as many in the market continue to bet that the UK will take longer to recover than other countries.

"Following the significant deterioration in the pound sentiment of late, we would not expect a meaningful recovery in the GBP against the USD and especially the EUR even if global risk appetite shows further signs of recovery in coming days," Commerzbank analysts said in a note.

(Reporting by Naomi Tajitsu; editing by Nigel Stephenson)