* Sterling rises 0.5 pct vs dollar, tracks euro higher
* Pound benefits from risk demand after Italy report of IMF
* Sterling risks selling pressure on weak UK economy outlook
LONDON, Nov 28 Sterling rose against a
broadly weak dollar on Monday, but it remained near a six-week
low and faces selling pressure this week from expectations the
government will cut its forecast for economic growth.
The dollar fell as European stocks rose and investors picked
up currencies perceived to be riskier on hopes that EU leaders
are pushing toward more radical action to resolve the debt
Italian bond yields fell after an Italian newspaper on
Monday reported that the International Monetary Fund was
preparing an aid package for Italy, but the amount cited was far
beyond the Fund's existing loan stock and the IMF said it was
not in discussions with Rome authorities.
The pound tracked gains in the euro versus the dollar, but
many expect sterling may suffer in a week of big domestic events
which could sour sentiment on the UK currency.
Analysts expect Bank of England Governor Mervyn King to
reiterate that the central bank is prepared to buy more assets
from the market to prop up the economy if necessary when he
addresses the Treasury Select Committee later in the day.
That policy of quantitative easing involves flooding the
market with pounds and has already weighed on sterling.
Before King's speech comes a reading of UK retail sales from
the Confederation of British Industry, which is expected to show
a further deterioration in November as consumer confidence
The UK government's autumn budget statement on Tuesday is
expected to contain a significant cut to the country's economic
growth forecast given ongoing signs that the UK economy is
struggling to recover.
"If we get a soft CBI reading and further dovish comments
from King at the Treasury Select Committee, and if we get some
pretty downbeat growth numbers tomorrow, that all plays into the
assumption that, if we don't get continued risk support,
sterling/dollar still looks vulnerable," said Jeremy Stretch,
currency strategist at CIBC.
In early London trade, sterling rose half a percent
on the day to $1.5520. Despite its gains, the pound hovered in
range of a low of $1.5423 touched late last week, its weakest
since early October.
The euro rose 0.3 percent to 86.04 pence.
Market participants warned that a nationwide strike of
public sector workers scheduled for Wednesday may also sour
sentiment for UK assets among foreign investors if they call
into question the future success of dramatic austerity measures.
Other signs also show the risk of more sterling selling this
week. The latest data on IMM positioning shows speculators
increased their bets to sell the pound, suggesting that downside
momentum is building.
(Reporting by Naomi Tajitsu; editing by Patrick Graham)