* Sterling touches $1.6218 in Asian trade, high since Oct. 5
* UK CPI data due at 0930 GMT
* Firmer-than-expected number could lift sterling
* Traders cite year-end demand to buy pounds
LONDON, Dec 18 Sterling hovered close to a
two-and-a-half month high against the dollar on Tuesday ahead of
inflation data that may add to expectations the Bank of England
will hold off from more easing for now.
Traders said sterling was also lifted in thin trade by
end-of-year demand to buy the currency from companies looking to
hedge and from central banks.
The pound was up 0.3 percent at $1.6210, having
touched $1.6218 in Asian trade, matching a high hit on Oct. 5.
More gains could take it towards the September peak of $1.6310.
UK inflation data at 0930 GMT is expected to show annual
growth in the UK consumer price index dipping to 2.6 percent
from 2.7 percent, though some analysts warned there was a risk
of a higher number.
Slightly stronger UK inflation data may add to expectations
that the BoE will not opt for more quantitative easing for the
time being, which could lift the pound.
Analysts at ING forecast the annual CPI growth rate to rise
to 2.8 percent, which they said could see the pound "test trend
channel resistance at $1.6250".
Sterling was also helped against the dollar after last
week's monetary easing in the United States and by uncertainty
over whether U.S. politicians will reach a deal to avoid the
"fiscal cliff" of steep tax hikes and spending cuts.
But analysts and traders said volumes were very thin, which
could lead to exaggerated moves.
"Sterling's rise is mainly related to the dollar's decline
coming into the end of the year," said Glenn Uniacke, a dealer
The euro was down 0.2 percent at 81.18 pence,
off Monday's near two-month high of 81.55 pence.
Investors will look to Bank of England policy meeting
minutes on Wednesday and retail sales data on Thursday for clues
on the chances of UK policymakers authorising more bond buying.
Quantitative easing is usually negative for a currency as it
increases its supply.
(Editing by Chris Pizzey, London MPG Desk, +44 (0)207 542-4441)