Sterling at 2-week high versus dollar, follows euro

* Sterling rises to 2-week high of $1.5502

* Better risk sentiment boosts pound but econ worries persist

* Sterling lags euro recovery, drops to 3-week low

* UK retail sales due at 0930 GMT

By Neal Armstrong

LONDON, Jan 20 (Reuters) - Sterling struck a two-week high against the dollar on Friday, boosted by improving sentiment towards riskier assets and a recovery in the euro, but further gains were hampered by concerns over the fragile UK economy.

The euro also reached two-week highs versus the dollar as solid debt auctions this week and hopes that Greece may be close to agreeing a debt-swap deal with its creditors to avert a chaotic default prompted short covering in the single currency.

"There's a general decent improvement in risk appetite this week and the safe-haven flight into dollars we saw at the end of 2011 is starting to unwind, which is helping sterling," said Michael Derks, chief strategist at FX Pro.

Sterling rose to $1.5502, its highest since Jan. 6, to trade with slight gains for the day before easing back to $1.5482. Traders said stop-losses were still lurking above $1.5500, with resistance highlighted at $1.5604, the 55-day moving average.

Speculation of foreign investment flows also helped support the pound, with China's sovereign wealth fund taking a minority stake in Thames Water.

Sterling initially lagged the euro. The pound slipped to a three-week low of 83.78 pence against the single currency before recovering to 83.50. Broad short covering has lifted the euro away from a 16-month low of 82.22 pence hit earlier this month.

Traders reported option-related offers in the 83.80 region with resistance seen at 84.22, the late December high.

UK retail sales data for December was due for release at 0930 GMT, with economists in a Reuters poll looking for a 0.7 percent rise on the month.

"Given some of the recent results from the retail sector in the past two weeks, one could be forgiven for thinking that a 0.7 percent rise may well be on the optimistic side," said Michael Hewson, strategist at CMC Markets.

Worries about the UK's outlook persist as austerity measures and spillover effects of the euro zone's debt crisis hang over the economy, prompting speculation of more asset purchases, or quantitative easing (QE), from the Bank of England as early as next month.

Data released this week showing an easing in inflation, which would have been welcome relief to the BoE's Monetary Policy Committee.

"The economy is once again flirting with recession. I'm not sure there'll be more QE in February but it definitely remains on the table," said Derks. (Editing by Susan Fenton)