Sterling climbs to 3-1/2 year high vs struggling euro

LONDON (Reuters) - Sterling hit a 3-1/2 year high against the beleaguered euro on Friday after a lacklustre U.S. jobs report stoked worries of a global slowdown, and prompted investors concerned about the euro zone debt crisis to cut exposure to the currency bloc.

The fall in the euro against the pound tracked a slide in euro/dollar as the data boosted demand for the safe haven U.S. currency. The pullback in investor appetite meant sterling was subdued against the dollar.

U.S. non-farm payrolls data showed 80,000 jobs added in June, in line with consensus forecasts and supporting the view the world's largest economy is stuttering.

Analysts said although the data was weak enough to fuel demand for safe haven assets, it was not bad enough to significantly raise bets on another round of quantitative easing to boost growth. Previous bouts of monetary easing have increased demand for perceived riskier currencies to the detriment of the dollar.

"The euro is drifting still lower and the dollar is stronger against pretty much currencies. The market thinks although the payrolls are not great, it's not the smoking gun required to get more QE out of (Federal Reserve chairman Ben) Bernanke," said Michael Derks, chief strategist at FxPro.

The euro fell 0.5 percent against sterling to 79.37 pence, its lowest level since November 2008. Traders said it fell past an options barrier at 79.50 pence and triggered stop-loss sell orders at 79.45 pence.

The next support for the single currency was seen at the October 2008 lows around 77.00 to 77.50 pence, where the 100-month moving average also appears.

Sterling fell 0.1 percent against the dollar to $1.5509, with support around the June 28 low of $1.5485. All in all, sterling's gains against the euro helped trade-weighted index to rise to 83.5, data from the Bank of England showed.

CENTRAL BANK EASING

Sterling's strong gains against the euro came after a European Central Bank rate cut and fresh bout of QE from the Bank of England the previous day.

The BoE on Thursday increased asset purchases under its quantitative easing programme by 50 billion pounds over the next four months to aid the flagging economy, although UK's safe haven status relative to the euro zone meant looser monetary policy had little impact on sterling.

In contrast, many market players said the ECB deposit rate cut to zero may result in the euro vying with the dollar as the currency of choice for funding purchases of higher-yielding assets.

"By cutting the deposit rate, the ECB has made the euro the funding currency of choice," said Ned Rumpeltin, G10 currency strategist at Standard Chartered Bank.

"We see the euro staying under pressure against sterling and the dollar. But sterling/dollar will be dragged down along with euro/dollar as euro zone risks dominate."

The euro zone is the UK's largest trading partner and British banks have a huge exposure to the currency bloc. So while the pound is sought after by investors seeking to flee the euro zone debt crisis, against the safe-haven dollar it usually underperforms.

(Additional reporting by Anirban Nag; editing by Ron Askew)