Pound hits 2-1/2-month high vs dollar

LONDON (Reuters) - Sterling hit a 2-1/2-month high versus the dollar on Thursday as the U.S. currency suffered after weak economic data, and analysts said more gains may lie in store for the pound due to technical factors.

Sterling was boosted as the dollar slumped across the board after data showing that U.S. producer prices fell more than expected in June, while a gauge of regional manufacturing this month fell to its lowest since December 2009.

Other figures showed business conditions in the U.S. mid-Atlantic region fell to their lowest since August 2009.

The weak readings came a day after minutes from the U.S. central bank showed policymakers believe they may need to do more to boost the economy if its recovery slows even more.

Analysts said that such pessimism about the U.S. economy was helping sterling to gain for a third straight day, extending its corrective rally since mid-May.

"Today's move is more a question of dollar weakness than sterling strength," said Nick Parsons, head of markets strategy at nabCapital.

"There are a lot of people who haven't believed in sterling's rally are still short on cable. There's a lot of capitulation here."

Sterling rose as far as $1.5396, climbing nearly 1 percent on the day. By 4:02 p.m., it stood at $1.5370, up 0.7 percent on the day.

Sterling was poised to close above technical resistance at $1.5310, the trendline from the November 2009 high of $1.6880.

A close above that level would open the way to $1.5525/60, the April high and potentially the October 2009 low of around $1.5710, analysts at Commerzbank said in a note.

"There is no real trend to speak of, but more people were willing to buy up the pound," one London-based trader said.

Parsons at nabCapital said he expected sterling's corrective rally to extend to near the mid-$1.55 region, adding that resistance stood at $1.5524, a high hit in mid-April.

Against a currency basket the pound rose to 81.3, matching a one-week high hit on Wednesday.

EURO FIRMS

Despite rallying against the dollar, the pound slipped versus the euro, which also gained from weakness in the U.S. currency.

The single currency rose about 0.5 percent to 84.02 pence, also boosted after a successful Spanish 15-year government bond auction.

But its gains were capped around 84 pence, the June high and the 55-day moving average.

Despite the euro's gains, Chris Turner, head of FX strategy at ING, said one-year implied volatility for euro/sterling showed there may be a risk for further downside, adding that it had remained around 11 percent while realised volatility had fallen to 9 percent.

"This summer has seen an uneasy calm fall over the euro zone story, but one that could shatter relatively easily," he said.

On a trade-weighted basis, sterling matched a one-week high of 81.3 hit on Wednesday.

Market reaction was limited to comments from Bank of England policymaker David Miles, who said it was not appropriate to raise interest rates now.

Separately, Chancellor George Osborne told the Treasury Select Committee that monetary stimulus was the most powerful tool in stimulating growth. The government has set out to tighten finances to lower its deficit.

Minutes from the U.S. Federal Reserve's latest policy meeting on Wednesday showed that officials thought they should be ready to consider more steps to boost the U.S. economy if an already softening outlook worsened.

(Additional reporting by Tamawa Desai, editing by Hugh Lawson)