May 30, 2012 / 8:08 AM / 6 years ago

Sterling falls to 4-month low vs dollar on Spain worries

* Sterling hits 4-month low vs dollar as Spain worries grow

* Pound expected to remain firm versus ailing euro

* UK consumer credit, mortgage lending data at 0830 GMT

By Jessica Mortimer

LONDON, May 30 (Reuters) - Sterling fell to a four-month low against the dollar on Wednesday as worries about Spain’s banking sector problems and its rising borrowing costs pushed investors into the safety of the U.S. currency.

The pound lost 0.5 percent on the day to $1.5562, breaking below a reported options barrier at $1.5600 to mark its lowest since late January.

However, the pound was expected to remain well supported against the euro as investors seek alternatives to the troubled common currency.

“Sterling is holding up better than the euro but we still see it at lower levels against the dollar,” said Richard Driver, analyst at Caxton FX, adding it could head down to $1.5350 by the middle of next month.

Concerns are growing that Spain may be forced to seek an international bailout. Ten-year Spanish bond yields are trading above 6.5 percent, dangerously close to the 7 percent level beyond which borrowing costs are deemed unsustainable over the long-term.

Spain will soon issue new bonds to fund ailing lenders and indebted regions, a move which is set to put further pressure on already stretched finances.

The euro was steady against the pound at 79.92 pence, having earlier touched a two-week low of 79.79 pence.

A break below there could prompt a retest of the trough of 79.50 hit earlier this month, its lowest level since November 2008.

UK mortgage lending and consumer credit data is due at 0830 GMT but is unlikely to attract much attention, with the market’s focus so firmly on events in the euro zone, traders said.

However, a particularly weak number could raise concerns about the prospect of the Bank of England opting for more quantitative easing in the coming months, which would weigh on the pound.

“UK data won’t really matter until it has a material impact on monetary policy,” Caxton’s Driver said. (Editing by Toby Chopra)

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