Sterling gains as UK data dampens BoE rate cut view

LONDON, May 12 (Reuters) - Sterling rose versus the dollar and euro on Monday, after robust UK wholesale inflation data prompted investors to pare back expectations on the extent of monetary easing likely from the Bank of England this year.

The Office for National Statistics said that output prices rose an unadjusted 1.4 percent on the month in April, taking the annual rate up to 7.5 percent. Both rates were the highest since the series began in 1986.

While investors still expect the Bank of England to cut rates in June, the data led investors to pare back expectations on the chances of further cuts later in the year.

"The data is likely to trim how deep future rate cuts may be," said Daragh Maher, senior currency strategist at Calyon.

"We're still looking at a June move as being likely, but how much more they move afterward may have to be cut back in terms of market expectations."

By 1134 GMT, sterling was up 0.3 percent at $1.9585 GBP=, over a cent up from the day's low of $1.9445.

The euro was down 0.4 percent at 78.92 pence EURGBP=.

Monday's data, which also showed that soaring fuel and food costs pushed input prices an adjusted 2.4 percent on the month in April -- taking the annual rate up to an all-time high 23.1 percent -- underlines the dilemma faced by the BoE in balancing rising inflation with a weakening economy.

The central bank is keen to prevent a slowing housing sector and poor consumer demand from spiralling into a sharper economic downturn, but it also needs to keep hefty inflationary pressures in check.