Sterling falls vs euro before UK CPI; rises vs dollar

* Sterling falls vs euro; market wary before UK inflation data

* UK CPI at 0930 GMT seen lower, raising chances of more QE

* Pound gains vs weaker dollar after China GDP data

By Jessica Mortimer

LONDON, Jan 17 (Reuters) - Sterling fell against the euro on Tuesday ahead of data expected to show weaker UK inflation that will increase the risk the Bank of England will opt for more monetary easing.

But the pound rose against a weaker dollar, in tandem with gains in the euro and other riskier currencies after data showed China's economy slowed less than expected in the fourth quarter, easing worries about the global economy.

UK inflation data at 0930 GMT is forecast to show annual CPI sliding to 4.2 percent in December from 4.8 percent the previous month, affirming the Bank of England's belief that consumer price inflation may have peaked.

The easing in price pressures will fuel expectations that the Bank of England will opt for more quantitative easing in February to aid a fragile economy. Inflation is likely to drop even further in January when last year's hike in VAT falls out of the equation.

"The lower CPI is the more ammunition it gives the BoE to do more QE, and we are approaching February when most people think the Bank will increase asset purchases," said Gavin Friend, currency strategist at nabCapital.

He added that the risks were that CPI would be below the consensus forecast, which would weigh on sterling, though he said the euro's gains were likely to be limited as concerns about the euro zone debt crisis remain.

The euro was up 0.5 percent at 83.03 pence, though it remained not far from its recent 16-month low of 82.22 pence and stayed well below last week's high of 83.76 pence.

Many analysts expect euro zone worries to push the euro back below its recent lows and towards the 80 pence mark.

On Monday, ratings agency Standard & Poor's cut its credit rating of the European Financial Stability Facility, the euro zone's rescue fund, by one notch to AA+, serving another blow to efforts to fight the crisis.

However, concerns are also growing about the UK economy, with recent weak data suggesting a high risk of recession. Some believe in the weeks to come data may weigh more heavily on sterling, which late last year was largely immune to UK worries as investors sought alternatives to euro zone assets.

"One of the potential triggers for a squeeze higher in euro crosses could be evidence of economic weakness outside of the euro zone. In this regard, sterling looks particularly vulnerable against the euro in the very near term," Citi analysts said in a note to clients.

Latest data showed currency speculators increased bets against the pound, boosting their net sterling short positions to 35,853 contracts.

Against the dollar, sterling was up 0.3 percent at $1.5364, taking it further away from Friday's trough of $1.5234, its lowest level since July 2010. Traders cited stop loss orders around Friday's high of $1.5410. (editing by Ron Askew)