Sterling at 2-month low vs dollar; euro woes weigh

Fri Nov 26, 2010 2:00pm GMT

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* Sterling at 2-month low vs dollar GBP=D4 at $1.5612 * Concerns about UK exposure to euro zone debt crisis

* Pound at 2-mth high vs weak euro; euro support at 84 pence

By Jessica Mortimer

LONDON, Nov 26 (Reuters) - Sterling fell to a two-month low against the dollar on Friday, dragged down as the euro came under heavy selling pressure on increasing worries the euro zone debt crisis would spread beyond Greece and Ireland.

The pound was also hurt by a more than 1 percent slide in UK equities .FTSE as European debt worries sparked broad risk aversion on financial markets.

It traded below its 100-day moving average -- now at $1.5704 -- for the first time since July, with a weekly close below that level likely to be seen as a bearish signal.

Against a broadly weaker euro, however, sterling rose to a two-month high on mounting speculation Portugal could follow Ireland and seek financial aid.

Analysts said sterling is seen as a better bet than the euro, but concerns about UK exposure to euro zone debt are likely to keep sterling weak versus the dollar, which has gained on safe-haven flows and evidence of an improving U.S. economy.

"Sterling is doing well versus the euro but much less well against the dollar," said Michael Derks, chief strategist at FXPro.

"The pound is 'euro light' - it's not the euro, but then again it does have some significant debt problems of its own and ultimately the UK's dominant economic links are with Europe".

Sterling fell 0.9 percent against the dollar GBP=D4 to $1.5612, its weakest since late September. It extended falls as it broke below $1.5650, triggering stop loss orders, traders said.

The euro was down 0.2 percent at 84.42 pence EURGBP=D4, having hit a two-month low of 84.20 pence as the single currency lost around 1 percent against the dollar EUR=.

Traders said there was talk of bids at 84.15 pence, with technical support seen at 84.00 pence and stop losses below that level.

The single currency fell broadly after an unsourced report in Financial Times Deutschland said a majority of euro zone nations and the European Central Bank were urging Portugal to apply for a bailout, though European officials denied this. [ID:nLDE6AP08Y]

"If, as we fear, the euro zone crisis continues to intensify, hopes that the external sector will offset the effects of the UK's own fiscal crisis may quickly fade again," said Vicky Redwood, economist at Capital Economics.

More signs emerged of a shaky UK housing market on Friday, with the UK's Land Registry reporting house prices in England and Wales fell 0.8 percent in October, the biggest monthly fall since February 2009. [ID:nLAH006823] (Editing by Susan Fenton)

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