Pound dips on CBI data, weak dollar limits losses

* Sterling dips after CBI factory orders survey disappoints

* Key downside support seen around $1.6370/$1.6262

* Cable benefiting from deadlocked U.S. debt talks, UK GDP

By Nia Williams

LONDON, July 27 (Reuters) - Sterling dipped slightly on Wednesday after disappointing UK factory data, but remained within sight of a six-week high versus a weak dollar and looked set to retain support in the absence of a deal to raise the U.S. debt ceiling.

The pound was down 0.2 percent on the day at $1.6380 , off a high of $1.6440 hit in earlier trade, after a Confederation of British Industry survey's total order book balance fell to -10 this month from +1 in June, well below forecasts for a reading of -2.

Traders cited selling by UK retail and corporate names, but analysts said that despite the weak data cable was likely to hold above support around the technical pivot point at $1.6370 thanks to broad dollar weakness.

"Everyone is looking at the bigger picture of what is going on with the U.S. with the debt ceiling, so sensitivity to data has been somewhat diminished," said Charles Diebel, head of market strategy at Lloyds.

"This data is a little disappointing but to a degree most of the expectations for UK data have been skewed to the downside. When you get a weak number like today it's more an affirmation of people's thinking than a shock."

Wednesday's data followed figures on Tuesday showing the UK economy grew 0.2 percent in the second quarter.

While the previous day's figure added to the argument the UK economic recovery is sluggish at best, it had supported the pound after it confounded investors who were expecting a weaker reading.

Deadlocked negotiations between U.S. politicians on raising the country's debt ceiling before the Aug. 2 deadline have unnerved investors who fear the world's largest economy risks a debt default and credit rating downgrade.

The political wrangling has pushed the dollar down against major currencies, although market players said technical charts indicated sterling/dollar looked "toppy" above $1.6400 and was unlikely to close above $1.6470.

Traders cited offers in the $1.6450-70 region while strong support was seen at $1.6370. Further support below that level was at Monday's low of $1.6262.

IMPROVING OUTLOOK?

The euro slipped 0.3 percent against sterling to 88.15 pence , but downside support was seen around 87.92 pence, the 61.8 percent retracement of the late May to early July rally.

Despite the euro zone debt crisis and threat of a Greek debt default the single currency has remained strong against the pound as a result of favourable rate differentials.

The Bank of England is expected to keep interest rates on hold at a record low 0.5 percent until late next year because of concerns over the fragility of the UK economic recovery while the European Central Bank has already embarked on a tightening cycle.

Tuesday's data surprised some in the market who were looking for a negative print, and the UK statistics office said quarterly growth could have been as high as 0.7 percent but for one-off effects including an extra public holiday for the royal wedding in April.

Kit Juckes, currency strategist at Societe Generale, said sterling was cheap against the euro and should appreciate if UK data improves.

"The pound is going to have a significant re-evaluation if it becomes clear the UK has got through this economic soft patch," he said. "At the moment it is washing around with euro/dollar rather than moving in its own right." (Additional reporting by Naomi Tajitsu; Editing by Stephen Nisbet)