February 16, 2017 / 10:15 AM / 6 months ago

Sterling inches higher as markets take Brexit breather

* Graphic: sterling and gilt yields bit.ly/2dgAXn1

* Graphic: World FX rates in 2017 tmsnrt.rs/2egbfVh

* Graphic: Trade-weighted sterling since Brexit vote tmsnrt.rs/2hwV9Hv

* Poll on UK retail sales here

By Patrick Graham

LONDON, Feb 16 (Reuters) - Sterling gained around half a percent against the dollar on Thursday, tracking broader moves in major currencies after some caution about the underlying strength of the U.S. economy set in following a high January inflation number.

The pound - down by around a fifth in just over a year against the dollar - has been stuck in a 3-cent range for a month absent dramatic developments in the government's move towards launching Brexit talks next month.

There have been negative signs from a handful of economic data, with wages numbers on Wednesday dipping below forecasts, but so far not enough to provoke another more aggressive round of pound selling.

"The market is clearly taking a breather before the next round of Brexit news," said Jane Foley, a strategist with Rabobank in London.

"Once the talks start properly the full complexity of the situation will become a lot more obvious. Meanwhile the market is getting further proof that real earnings are going to be significantly lower by the end of the year. Sterling will be up for a rocky ride at the very best."

The pound gained 0.3 percent to $1.2497 in morning trade in London. It was marginally stronger at 85.08 pence per euro.

Retail sales numbers due on Friday will provide the next clue to the broader strength of the UK economy, which has proved consistently more robust than expected in the face of Brexit nerves since last June.

Sales growth is expected at 3.4 percent year on year in January.

"The pound has done a great job holding up into Thursday, seemingly on the back of a market that does not want to get too aggressive with US Dollar long bets in the face of Trump protectionism and Trump uncertainty," analysts from LMAX said.

"Data hasn't exactly been supportive. Meanwhile, Brexit remains a big concern."

Editing by Jeremy Gaunt

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