Sterling down vs euro, gains vs soft dollar

LONDON, May 20 (Reuters) - Sterling held its own versus the dollar on Tuesday, but eased versus a broadly strong euro after a jump in German producer price inflation reinforced expectations that euro zone rates won't be cut for a while yet.

In contrast, the Bank of England has eased policy by 75 basis points since December and is expected to continue cutting rates this year despite above-target inflation.

"Our bias is that they (Bank of England) will have to cut. For the ECB the growth figures haven't really been disastrous, and the risks don't look as bad, so from that perspective euro/sterling is still upwardly biased," said Divyang Shah, chief strategist at CBA.

"Even if you look at the worst case scenario, we don't see the ECB aggressively cutting. For the Bank of England the risk (of aggressive cuts) is always there given the problems in the housing market," he added.

By 0710 GMT, the euro was up 0.1 percent at 79.66 pence, bringing its gains to 8.4 percent <EURGBP=> for the year.

Sterling however added a third of a percent versus the dollar to $1.9562 <GBP=>, cashing in on the greenback's broad based weakness due to worries about the possibility of stagflation in the United States.

No major British data is due on Tuesday, but there were signs of economic weakness from the corporate sector.

Classified advertising directories firm Yell (YELL.L: Quote, Profile, Research) halved its final dividend payment to shareholders due to an uncertain economic outlook.

Britain's largest clothing retailer Marks and Spencer (MKS.L: Quote, Profile, Research) said April was a "difficult month" and market conditions would likely remain tough for the foreseeable future, even though its annual profits came in line with expectations.