Pound slides to seven-week low vs euro

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

LONDON (Reuters) - Sterling hit a seven-week low against the euro and fell versus the dollar on Monday as the euro staged a broad recovery from lows hit after a ratings downgrade on Ireland and on concerns about Hungary.

A large euro buy order early in the session pushed the single currency higher across the board, prompting investors to shrug off news elsewhere and cut their euro short positions against a number of currencies, including sterling.

Traders said movements in the euro were the main drivers for the pound, particularly given there are few market-moving events for sterling until the release of Bank of England minutes on Wednesday and gross domestic product figures on Friday.

Shrugging off earlier hawkish comments from a UK policymaker, the euro rose nearly 1 percent against the pound, breaching the 85 pence mark for the first time since late May.

"Sterling is being caught in the maelstrom of what's going on with the euro. Euro/sterling is bid on the back of what's going on in euro/dollar, which is forcing cable lower," said Gavin Friend, currency strategist at nabCapital.

At 3:32 p.m., the euro was 0.9 percent higher against the pound, hitting a seven-week high of 85.30 pence. This leaves the euro heading for its biggest one-day gain against the pound since late June.

"The unexpected break above the 84.00 level throws into doubt our lower euro scenario ... The 84.00/10 area should now act as significant support for this move higher," said Michael Hewson at CMC Markets.

Against the dollar sterling fell 0.4 percent to $1.5226, well below a high of $1.5351 reached early in the session.

Potentially sterling-positive M&A news also failed to buoy the pound, with France's GDF Suez (GSZ.PA) reviving tie-up talks which could see it take a majority stake in Britain's International Power (IPR.L).

BOE MINUTES AHEAD

Comments by Bank rate-setter Andrew Sentance reiterating his view that the bank should gradually raise rates lifted sterling in early trade, but analysts said most investors preferred to wait for the Bank minutes on Wednesday for more details on policymakers' thinking.

"For sterling to see a leg higher we would need to see at least one other person join Sentance in voting for a hike before the market contemplates rates rising sooner rather than later," said RBC currency strategist Adam Cole.

Sentance was alone in June in voting for a 25 basis point hike in interest rates to take them above their current record low 0.5 percent.

Sentance's comments were also partly offset by a downbeat house price survey from Rightmove, which said asking prices for British homes fell by 0.6 percent month-on-month in July, the first fall this year.

Tuesday will see the release of public finances data for June, with second-quarter economic growth figures due on Friday.

(Reporting by Jessica Mortimer; Editing by Susan Fenton)