Pound rises after mixed UK data, gains capped

LONDON (Reuters) - The pound rose on Tuesday after strong retail sales and house price data suggested the economy may be bottoming out, although volatile share prices kept investors cautious about risk and trimmed some of the pound's gains versus the dollar.

Figures showing falling consumer prices bolstered the view that the Bank of England will continuing quantitative easing measures to boost the economy, which also prompted the UK currency to back down from an earlier climb.

Early on Tuesday, the British Retail Consortium said like-for-like retail sales rose 1.4 percent in June on the year while the Royal Institution of Chartered Surveyors said its house price balance posted its best reading since September 2007.

"We had a better underlying perception of the UK economy from the BRC and the RICS figures," said Jeremy Stretch, strategist at Rabobank in London.

"But equity markets are proving unable to hold onto gain, so sterling is giving back some of its gains."

Also limiting sterling gains were government figures showing British consumer prices fell below the Bank of England's 2.0 percent target in June, in line with market expectations.

Annual CPI fell to 1.8 percent, the lowest since September 2007, while retail price inflation fell at an annual 1.6 percent its sharpest drop since records began in 1948.

By 4:01 p.m., sterling traded at $1.6274, up 0.3 percent on the day, but off the day's high of $1.6345.

A tentative slide in U.S. stock prices into negative territory pulled UK share prices down from an early climb, putting the pound under some selling pressure after a stronger-than-expected earnings report from Goldman Sachs did little to stoke significant risk appetite.