Sterling pares China-fuelled gains; UK budget eyed

* Sterling flat at $1.4832 GBP=D4

* Pound earlier hits 5-1/2 week high after China yuan move

* Focus on Tuesday's UK budget; spending cuts eyed

By Tamawa Desai

LONDON, June 21 (Reuters) - Sterling's run against the dollar ran out of steam on Monday after initially hitting a 5-1/2-week high as the appetite for risk grew after China said at the weekend it would unshackle the yuan. [ID:nN20208975].

The market also grew cautious ahead of the new UK government's first budget due out on Tuesday, which is likely to be the tightest in at least 30 years to rein in the deficit. [ID:nLDE65G22W]

By 1420 GMT, sterling was largely unchanged from late U.S. trade on Friday at $1.4831 GBP=D4, after rising to $1.4936, its highest since mid-May.

"The initial reaction to China's move was to play it as a positive risk and push the dollar down; sterling has benefitted from that as well," said Adam Cole, global head of currency strategy at RBC Capital Markets.

UK finance minister George Osborne is set to release on Tuesday his first budget since the Conservative-Liberal Democratic coalition came into power last month.

While aggressive fiscal tightening would help keep sovereign credit risk concerns at bay and support the UK currency, analysts say the pound may also come under pressure.

"For sterling, a relatively tight budget would likely be viewed as good for bonds and perhaps reduce the risk premium on sterling," said Paul Robinson, head of European FX research at Barclays Capital.

"But that would be offset to a large extent by the monetary policy implications -- the tighter fiscal policy is, the looser that monetary policy is likely to be."

Technical analysts say sterling could rise a little further, as a weekly close just above $1.4850 eased bearish pressure and could target a move to $1.5200, said Nicole Elliott at Mizuho.

Data last Friday showed currency speculators sharply trimming down long U.S. dollar positions, with net short sterling contracts falling to 48,134 contracts in the week ended June 15 from 74,680 the previous week. [IMM/FX].

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Full UK budget coverage [ID:nLDE65A138]

Full yuan coverage [ID:nSGE65J00E]

Unlocking the yuan china.thomsonreuters.com/yuan/

Graphic on yuan movements r.reuters.com/sut87k

Graphic on CFTC futures positioning

r.reuters.com/kus26k ^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^

The euro was little changed at 83.50 pence EURGBP=D4

Reaction was limited to data from property website Rightmove which showed asking prices for British homes rose 5.0 percent on a year ago in June, up from a 4.3 percent annual gain in May. [ID:nLDE65H1YB] (Graphics by Scott Barber)