Sterling slips as BoE King hints at more QE

* Pound down close to a cent vs dollar at $1.5430 GBP=D4

* BoE Governor King says more asset purchases may be needed

* MPC says decision to pause was finely balanced

By Neal Armstrong

LONDON, Feb 23 (Reuters) - Sterling fell on Tuesday as Bank of England Governor Mervyn King said risks to the bank's central view of a gradual recovery remained to the downside and further quantitative easing may be required.

Asked whether more quantitative easing would be needed, King told parliament's Treasury's Select Committee, "It may be. We'll have to see how things pan out. My particular concerns at present derive from the state of the world economy." [ID:nKING]

"We stand ready to do whatever seems appropriate," he said.

The testimony by members of the Monetary Policy Committee was based on the BoE's February inflation report, when the MPC unanimously voted to pause its asset purchase programme, under which 200 billion pounds was pumped into the economy to try to and pull the UK out of its worst recession in decades.

"The BoE testimony has shown the decision not to expand quantitative easing was very finely balanced. It does look as though low rates are here to stay for the foreseeable future," said Rabobank currency strategist Jeremy Stretch.

At 1519 GMT, sterling was trading at $1.5430 versus the dollar GBP=D4, down close to a cent compared to pre-testimony levels, though off session lows of $1.5396. It had reversed early morning gains, which came on the back of an initially weaker greenback.

Against the euro EURGBP=D4, the pound also sold off on the BoE comments, taking the cross briefly above its 200-day moving average at 88.20 pence. A Fitch Ratings downgrade of Greece's four largest banks later pulled the euro back to flat versus sterling. [ID:nLDE61M205]

"The Greek banking downgrade has led to a softer euro across the board and that has helped euro/sterling reverse that initial BoE driven move," said Audrey Childe Freeman, currency strategist at BBH.

MPC member David Miles said the decision to pause QE was a "pretty finely balanced decision". He added there could be a strong case for expanding QE further down the line.

The MPC revised down its two-year inflation forecasts in the February inflation report, leading to some speculation that further asset purchases would be needed.

Sterling also fell to a fresh 25-year low versus the Australian dollar of A$1.7060, as the diverging rate paths of the British and Australian economies added downward pressure.

Reserve Bank of Australia Deputy Governor Ric Battellino said on Tuesday the country was enjoying a mining boom that could last beyond 2020 and that policymakers would need to be disciplined to contain inflation it generates. [ID:nSYA008213]

WEAK DATA

Sterling has fallen more than 10 cents against the U.S. dollar since mid January and hit a nine-month low of $1.5345 on Friday after disappointing January UK retail sales data.

Weak data and a spiralling budget deficit coincided with currency speculators boosting their short bets against sterling in the week ended Feb. 16, data on Friday showed. [ID:nN19114651]

Data released from the British Bankers Association on Tuesday added to the negative picture, showing the number of home purchases approved by British banks in January fell sharply on the month. [ID:nLDE61L1HC]

Focus will move towards the second estimate of UK gross domestic product due out on Friday, set to show only a small upward revision to 0.2 percent quarterly growth from a previous reading of 0.1 percent for the last three months of 2009.