UK PPI data lifts sterling vs euro, outlook shaky

LONDON, April 14 (Reuters) - Sterling extended early gains against the euro on Monday, as British producer price inflation surged -- taking some heat out of Bank of England interest rate cut expectations.

Factory gate inflation in March unexpectedly rose to its strongest since 1991 as firms struggled with record input price inflation, official data showed [ID:nONS003463].

The figures helped lengthen an initial rally sparked by knee-jerk euro losses after G7 nations surprised investors late on Friday by expressing concerns on sharp swings in major currencies.

Some analysts said the figures, which the Bank of England had not seen before last week's 25 basis point rate cut to 5 percent, may cool expectations for further monetary easing this year. Others said Monday's rally could prove fleeting.

"The PPI data may have had some short-term impact in helping to facilitate some profit-taking on the move in the euro we've seen in the last couple of days," AIB Group Treasury economist Geraldine Concagh said.

"I don't think the data changes the view for the UK that rates will go down again and sterling will remain under pressure," she added.

By 1408 GMT, the euro was down 0.7 percent at 79.83 pence EURGBP= -- still very close to record highs hit last week at 80.37 according to Reuters data. The pound was up 0.7 percent at $1.9855 GBP=.

Analysts say pressure on sterling is expected to persist due to a poor economic backdrop, with growth concerns stemming from the crisis in global credit markets at the forefront of policymakers' minds as opposed to high inflation.

However, a refocusing of attention back onto the dollar's broad weakness might see sterling probe the $2 mark, technical analysts have said.