May 30, 2018 / 10:14 AM / 24 days ago

Sterling rises from six-month lows as markets settle

* Graphic: World FX rates in 2018 tmsnrt.rs/2egbfVh

* Graphic: Trade-weighted sterling since Brexit vote tmsnrt.rs/2hwV9Hv

LONDON, May 30 (Reuters) - Sterling recovered on Wednesday from the previous day’s six-month low, as currencies stabilised after Italy’s political crisis sent shockwaves through global financial markets this week.

The British currency edged 0.1 percent higher at $1.3293 after falling to its lowest levels since Nov. 20 on Tuesday. But it weakened against the euro by half a percent, to 87.46 pence, thanks to a broad-based euro bounce.

Hopes that Italy could avoid a new election helped European markets recover from one of their worst sell-offs in years on Wednesday, though markets remained wary.

Data last week showed sterling were still vulnerable to any weak economic data, with markets pricing in about one interest rate increase through 2018.

May’s purchasing-manager index will offer some clues on how the economy is faring. A Reuters poll forecast the index would show growth moderated in April.

With monetary policy makers turning more cautious and data-dependent after a subdued first quarter, the PMI releases over the next two weeks deserve particular attention, Goldman Sachs strategists said in a note.

Currency derivatives tied to the outlook for sterling were trading near their lowest levels in nearly three months.

Risk reversals for sterling, a gauge of demand for options on a currency rising or falling, are holding near their lowest levels since early March, indicating that investors are looking to protect downside portfolio risk.

On a trade-weighted basis, sterling was trading at 78.73, not far from a two-month low of 78.53 hit earlier this month. (Reporting by Saikat Chatterjee, editing by Larry King)

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