Sterling boosted as UK data dampens BoE rate cut view

LONDON, May 12 (Reuters) - Sterling rose versus the dollar and euro on Monday, after robust UK wholesale inflation data prompted investors to pare back expectations on how far the Bank of England is likely to cut interest rates this year.

The Office for National Statistics said output prices rose an unadjusted 1.4 percent on the month in April, taking the annual rate up to 7.5 percent. Both rates were the highest since the series began in 1986.

While many investors still expect the Bank of England to cut rates in June [BOE/INT], some analysts say the decision now looks less clear cut.

"The one percent rise in core output price inflation is truly shocking. The market's optimism about a June rate cut may be misplaced," said Brian Hilliard, global chief economist at Societe Generale.

By 1415 GMT, sterling was up 0.35 percent at $1.9597 <GBP=>, over 1.5 cents up from the day's low of $1.9445.

The euro was down 0.4 percent at 78.92 pence <EURGBP=>.

Sterling was also cheered earlier by first quarter results from banking heavyweight HSBC (HSBA.L: Quote, Profile, Research), which contained lower writedowns from the global credit crunch than expected.

Monday's data, which also showed that soaring fuel and food costs pushed input prices an adjusted 2.4 percent on the month in April -- taking the annual rate up to an all-time high of 23.1 percent -- underlines the dilemma faced by the BoE in balancing rising inflation with a weakening economy.

The central bank is keen to prevent a slowing housing sector and poor consumer demand from spiralling into a sharper economic downturn, but it also needs to keep hefty inflationary pressures in check.