Pound hits 9-month low vs dollar on weak data

LONDON (Reuters) - Sterling fell to a nine-month low against the dollar on Friday after a surprisingly big fall in UK retail sales highlighted weak consumer demand.

Already knocked by worse than expected public finances data on Thursday, the pound extended losses on the view that a painfully slow economic recovery and a grim fiscal position would keep sentiment towards the currency negative.

Also keeping sterling weak was a rally in the dollar after the market took the Federal Reserve's surprise increase in its discount rate as a sign of a future hike in U.S. interest rates, which are likely to rise before UK ones.

Sterling fell to $1.5345, its weakest since May 2009, after figures showed UK retail sales fell 1.8 percent on the month in January, their sharpest slide in 1-1/2 years.

"UK retail sales figures for January are awful," said James Knightley, senior economist at ING in London.

"This points to very modest retail sales growth through most of this year, which will keep Bank of England rhetoric dovish and sterling under pressure."

By 10:53 a.m., it traded at $1.5375, down 1.6 percent from late levels in New York.

Also dragging the pound lower was broad demand for the dollar, which rallied to an eight-month high against a currency basket.

"The view to sell into (cable) rallies will likely persist, at least for the short term," said Paul Mackel, director of currency strategy at HSBC in London.

Sterling is poised to fall nearly 2 percent against the dollar this week, having retreated from a near-two-week high above $1.58 hit earlier this week.

FIBONACCI FOCUS

The euro rose 0.7 percent on the day to 87.91 pence, its highest since February 11, and pulling further away from a five-month low around 86 pence last month when traders had dumped the euro on concerns about Greece's debt problems.

Thursday's dismal UK public finances data reminded the market that Britain is also suffering from a weak fiscal position and Barclays analysts said this would keep the euro trading around 88 pence against sterling over the next three months.

Sterling's slide versus the dollar this week has resulted in a decisive break below $1.5690, the 38.2 percent Fibonacci retracement of its move from trough to peak in 2009.

Technical analysts said they were focussing on levels around $1.5270 the 50 percent Fibonacci level, adding that a fall beyond that may open sterling to even more selling.

(Editing by Mike Peacock)