Sterling rises, UK rate futures slip after retail data

LONDON, May 22 (Reuters) - Sterling hit a session high against the dollar on Thursday and UK rate futures and gilts fell after a UK retail sales figures, while weak, were more resiliant than market participants had been expecting.

Figures showed that British sales fell 0.2 percent in April from the previous month, clocking a slide for the second straight month but coming in slightly stronger than forecasts for a 0.5 percent fall.

The data added to expectations that the Bank of England may not cut interest rates in the coming months as the economy may not be as grim as some had been expecting, while inflation risks remain high.

Sterling climbed shortly after the announcement, hitting a session high of $1.9767 <GBP=>, up 0.2 percent on the day. The euro slipped to a session low of 79.69 pence <EURGBP=>, pulling away from a one-month high hit on Wednesday.

"People had been looking for quite a sharp fall based on the numbers we've seen for consumer confidence and other indicators. It (the fall) was a lot less than expected...this show that there is really no need for them to cut interest rates," said Jeavon Lolay, economist at Lloyds TSB Financial Markets.

"Inflation is a bigger concern and I think these data confirm that." UK interest rate and gilt futures fell after the data, pushing implied rates and government bond yields higher.

Two-year gilt yields rose two basis points to 4.88 percent <GB2YT=RR> and 10-year yields also rose two basis points to 4.90 percent <GB10YT=RR>.

The June gilt future fell around 15 ticks to 106.80 FLGc1 and short sterling contracts wiped out modest gains to trade down as much as 5 ticks at the back end of the 2008 strip <0#FSS:>.

(Reporting by London Markets Team)