Sterling firms vs dollar after bank stress tests

* Sterling hits 3-month high vs dollar * Pound boosted by last week's UK GDP

* Stress test results boost demand for higher-risk FX * Risk demand supportive for sterling, but gains capped

By Naomi Tajitsu

LONDON, July 26 (Reuters) - Sterling hit a three-month high against the dollar on Monday, extending gains in the aftermath of strong UK economic growth data and tracking gains in other higher-risk currencies following European bank stress tests.

Most global share prices rose on Monday, helped by Friday's generally benign test results which helped prompt demand for riskier assets, including sterling, although many investors were not fully convinced about the tests' credibility. [ID:nSGE66P089]

A bullish set of data late last week showed the European economy may be doing much better than previously thought.

Figures on Friday showed the UK economy expanded a surprisingly strong 1.1 percent in the second quarter, suggesting it was on a much better footing than many had believed, and this was still supporting sterling on Monday.

"Sterling has been on a general uptrend, which has been helped by the strong GDP last week. It's also providing an avenue for dollar selling," said Daragh Maher, senior currency strategist at Credit Agricole.

Yet he added that sterling's upside was capped by technical resistance, and that a better sterling play would be to sell the euro against the pound in the near term.

Some analysts were sceptical that the pound would significantly extend its rally, given the view that economic growth momentum may sputter as the UK government implements deep spending cuts and tax rises later this year.

Signs the economy may already be facing difficulties were evident in a reading of UK house prices by Hometrack, which on Monday showed an average fall of 0.1 percent in home prices in July, the first fall since April 2009. [ID:nLDE66M1LX]

By 1402 GMT, sterling GBP=D4 had climbed roughly half a percent on the day to a session peak of $1.5521, its highest since mid-April. A 0.4 percent rise in UK shares .FTSE helped boost demand for the pound. Still, further gains were capped by the pound's 200-day moving average, located around $1.5560 on Monday.

The euro EURGBP=D4 slipped 0.2 percent to 83.52 pence.

Sterling extended gains after posting slight, weekly gains against both the euro and the dollar last week, and the latest positioning data showed speculators continue to trim bets for more weakness in the currency, seen as a supportive factor. [IMM/FX]

Analysts expect the pound to consolidate gains this week, given a lack of major UK events or data.

Data from the Confederation of British Industry on UK retail sales in July are due on Tuesday, while additional data on UK house prices and figures on consumer confidence and credit will be released on Thursday.