September 17, 2012 / 1:02 PM / 5 years ago

Sterling holds near 4-mth high vs dollar, outperforms euro

* Sterling holds gains versus dollar

* Spain worries weigh down on euro

* BoE minutes eyed, could spur more gains in pound

By Anirban Nag

LONDON, Sept 17 (Reuters) - Sterling was firm near a four-month high against the dollar on Monday on expectations the Federal Reserve's new round of economic stimulus will continue to drive down the U.S. currency.

It was also higher against the euro, which ran out of steam after hitting its highest level against sterling in three months on Friday.

Investors are waiting to see if Spain will ask for aid to tackle its debt and analysts said Madrid appeared to be paving the way for such a request after it said it would set clear deadlines for structural reforms by month-end.

Sterling was trading at $1.6230, having hit a peak of $1.6255 on Friday, its strongest since late April. Data from the U.S. Commodity Futures Trading Commission showed speculators turned negative on the dollar in the latest week to Sept. 11, while they cut bets against the pound.

Traders and analysts saw the potential for sterling to gain further due to the Fed's new bout of quantitative easing, which increases the supply of a currency and typically cheapens it, potentially taking sterling towards this year's high of $1.6304.

"Cable (sterling/dollar) has been fairly well bid in the past few sessions and we expect that trend to continue, primarily because of the dollar's weakness. We see it rising to $1.63 in the near term," said Michael Derks, chief strategist at FXPro.

Sterling has also been underpinned by better UK data in recent weeks. That has eased concerns about the outlook for the economy and the prospect of more quantitative easing from the Bank of England (BoE).

The BoE will release minutes of its latest monetary policy meeting this week, which will show the balance of views on further stimulus. Most analysts do not expect any easing by the BoE at least until November.

Adam Cole, head of G10 currency strategy at RBC Capital Markets, said in a note that he will be looking for signs that some members of the Monetary Policy Committee may vote against extending the QE programme in November. That would be positive for sterling, he said.

UK inflation data for August is due on Tuesday and analysts expect price pressures to have eased. But any signs that inflation is sticky could give the BoE less breathing space to loosen policy.

"We expect CPI inflation to remain at 2.6 percent year-on-year; slightly above the consensus forecast. We favour being tactically long GBP on the crosses," Cole said.

The euro fell against the pound on sustained selling by corporates and after peripheral bond yields rose. The euro was down 0.3 percent at 80.70 pence, pulling back from a three-month high of 81.14 struck on Friday.

The common currency has broadly outperformed since the European Central Bank announced a bold plan earlier this month to lower borrowing costs for the bloc's most indebted countries, helping shore up sentiment towards euro zone assets.

Some traders said the pound could regain some ground against the euro because recent data suggested the euro zone was still grappling with a sharp economic downturn, which could drive the ECB to lower rates in coming months.

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