* Euro zone worries lift pound vs euro
* Sterling turns lower vs dollar, nears 1-month low
* BoE's King sees little sign of UK recovery
By Michael Szabo
LONDON, July 10 Sterling hit a fresh 3-1/2 year
high against the euro on Tuesday as market focus switched back
to the euro zone debt crisis, spurring the pound to recover from
an early dip caused by comments from the Bank of England
The euro dropped 0.4 percent to 79.005 pence,
hit by comments from Italy's prime minister and ahead of a
German constitutional court ruling that could thwart the
deployment of the euro zone's rescue fund.
Italian premier Mario Monti said his country may be
interested in tapping euro zone aid funds for bond support
reserved for member states that comply with European commitments
and that do not require external surveillance. [ID: nI6E8E7028]
Sterling had eased earlier after Bank of England chief
Mervyn King said the British economy was showing little signs it
was about to recover and expressed concern on the export
But market participants took the opportunity to sell the
euro and buy pounds, adding that although the UK economic
picture looked bleak, the euro zone outlook was worse.
"I'm negative on sterling versus the dollar, but
euro/sterling could head even lower, possibly towards 78.00 in
the coming couple months," said John Hardy, FX strategist at
The euro was also reeling against major currencies after a
late night meeting of euro zone finance ministers on Monday made
little progress towards using the bloc's rescue funds to stem
soaring Spanish and Italian borrowing costs.
FALLS VS DOLLAR
The pound was lower against the dollar, trading down 0.2
percent at $1.5495, edging closer to a one-month low of
Sterling had gained early in the session after
better-than-expected UK production figures. But other retail
sales and housing data were weak and analysts said the broad
picture remained of a fragile UK economy.
"Overall the news from the UK is very negative and sterling
is still very vulnerable," said Ian Stannard, head of European
FX strategy at Morgan Stanley.
"Any further moves higher in cable (sterling/dollar) will be
short-lived and provide renewed selling opportunities," he
Looking forward, analysts said the market would scrutinise
minutes from last month's meeting of the U.S. Federal Reserve,
to be published on Wednesday.
Any indication the Fed may opt for another round of asset
buying before the end of the year is likely to weigh on the
dollar versus sterling, they said.
(Editing by Susan Fenton)