* Sterling extends gains vs euro after UK data boost
* BoE rate decision 1100 GMT; rates and QE seen on hold
* UK industrial production, manufacturing output 0830 GMT
By Nia Williams
LONDON, April 5 (Reuters) - Sterling hit a 2-1/2 month high against the euro on Thursday, buoyed by improving UK data that contrasted with a struggling euro zone economy, with investors also looking ahead to a Bank of England rate decision later in the session.
Despite this week’s marked improvement in UK PMI data, the BoE’s Monetary Policy Committee is expected to keep rates on hold at a record low of 0.5 percent. The total amount of the bank’s asset purchases, aimed at stimulating growth, is also forecast to remain unchanged at 325 billion pounds.
The euro fell 0.1 percent on the day against the pound to 82.61 pence, its lowest level since mid-January.
Market players reported an option barrier at 82.50 pence and said the Jan. 16 low of 82.55 pence would offer strong support to the euro.
“When you look at UK data and how cheap the pound is, and look at the re-emergence of periphery concerns in Europe you are going to want to be short euro/sterling,” said Kit Juckes, currency strategist at Societe Generale.
Analysts said further gains in the pound would likely be limited ahead of the BoE decision. Although signs of a modest economic recovery have reduced the need for more quantitative easing, which involves printing more money and can crimp demand for a currency, policymakers would be wary of choking off tentative growth by tightening policy.
“The MPC has two modes - to leave policy on hold or to ease more, so sterling is not going to get much help from the UK side,” Juckes said.
Strong UK PMI numbers this week fuelled hopes the UK could avoid slipping into recession and contrasted with euro zone PMI surveys which have edged below 50, marking a contraction in activity.
Investors’ next focus is UK industrial and manufacturing data at 0830 GMT, ahead of the BoE rate decision at 1100 GMT. Analysts said weaker-than-expected numbers could dispel some of the recent optimism and undermine the pound.
“UK industrial and manufacturing production will be of interest. The market is expecting UK IP to rebound after a disappointing January number, so a downside surprise will weigh on GBP (sterling),” Lloyds analysts said in a note.
Sterling was also close to flat against the dollar at $1.5885, slipping further away from Monday’s peak of $1.6063, its highest since mid-November.
The dollar has rallied broadly this week after minutes from the Federal Reserve’s March meeting on Tuesday showed only two of the 10 policy-setting committee members saw the case for additional monetary stimulus in the light of an improving economy. (Editing by John Stonestreet)