Sterling dented by dollar rally and weak retail data

LONDON (Reuters) - Sterling hit a two-week low on Tuesday after weak retail sales data exacerbated fears about the health of the economy while soft mortgage data highlighted stress in the property market.

A broad dollar rally also weighed on the pound, as the U.S. unit hit a one-month high against a basket of major currencies after U.S. consumer confidence figures for July rebounded from a 16-year low.

The pound fell sharply after the Confederation of British Industry said its retail sales balance fell to a series low in July. The CBI's retail sales balance fell to -36 in July from -9 in June and compared with a consensus forecast for a fall to -15.

Sterling offered limited initial reaction to Bank of England data showing that approvals for new home loans in Britain fell to a record low in June.

But taken with the retail figures, they highlighted that weakness in the housing market was weighing on the broader economy and taking its toll on consumer demand.

Mortgage approvals fell to 36,000 last month, from a downwardly revised 41,000 in May, pointing to further sharp falls in house prices in the months ahead ID:nL9210791.

"The extent of the housing market decline ... is pretty much within expectations whereas more important factors for the market are the signs of a steeper decline in the pace of the consumer," said Lee Hardman, a currency economist at BTM UFJ.

"The sharp decline in CBI retail sales is pointing towards the pace of the slowdown in consumer spending as potentially picking up."

The pound fell more than 0.6 percent on the day to $1.9815, as losses were exacerbated by a broadly higher dollar.