Sterling climbs vs dollar after bank stress tests

* Sterling hits 3-month high vs dollar * Pound boosted by last week's UK GDP, stress tests results * Risk demand supportive for sterling, but gains capped

LONDON, July 26 (Reuters) - Sterling hit a three-month high versus 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.

UK and global share prices rose on Monday after the benign test results late last week helped to prompt demand for riskier assets, although many investors were not fully convinced about the credibility of the tests. [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 the economy was on a much better footing than many had believed, and this was still supporting sterling on Monday.

Still, 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. "The GDP data rounded off a week of generally stronger UK data, including retail sales and M4 growth," UBS analysts said in a note.

"However, we maintain our bearish stance on sterling on the view that a combination of fiscal tightening and loose monetary policy should prompt a period of prolonged sterling weakness."

Signs that the economy may already be facing headwinds 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 0736 GMT, sterling GBP=D4 had climbed around 0.4 percent on the day to $1.5502, poking above options-related barriers suspected around $1.5500 to hit its highest since mid-April. Further sterling gains were capped by the pound's 200-day moving average, located around $1.5560 on Monday.

The euro EURGBP=D4 slipped 0.3 percent to 83.49 pence.

Sterling had inched higher against both the euro and the dollar last week, and the latest positioning data showed speculators continue to trim short positions in the currency, seen as a supportive factor.

Analysts expect the pound nay 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. (Reporting by Naomi Tajitsu, editing by Patrick Graham)