Jan 11 - Sterling hovered close to a four-month high versus a struggling euro on Tuesday as sovereign funding worries undermined the single currency, with market players saying the pound looked set for more gains.

Euro vs Sterling

The euro remained on the back foot with the focus on whether Portugal will be able to raise funds in the debt market on Wednesday or be forced to turn to the European Union and IMF for financial aid. Bond auctions in Spain and Italy will also be closely scrutinised on Thursday.

Sterling was trading around 83.13 pence per euro, close to flat on the day, but not far from a four-month high of 82.85 hit on Monday as the euro came under broad selling pressure.

"EUR/GBP is still the favoured medium in the market as model accounts are now entrenched with selling. I'm looking to sell around 83.60 where we'll run into some short-term stop-loss orders," said a London-based spot trader.

Technicals were also showing further room on the downside for the euro, with Commerzbank analysts highlighting potential for a move to the June 2010 low at 80.67 against the pound.

Sterling was steady against the dollar at $1.5555, in the middle of a $1.5345/1.5680 range set from the end of December. Traders said option expiries at $1.5500 may influence price action on the day.

RETAIL SALES FALL

British retail sales fell in December for the first time since last April as heavy snow and concerns about the economic outlook deterred consumers during the Christmas shopping period, a survey showed on Tuesday.

The British Retail Consortium said the value of sales dipped 0.3 percent in December from a year earlier on a like-for-like basis, following a 0.7 percent rise in November.

Separately, the British Chambers of Commerce said a surge in demand for British exports will not be enough to stop British economic growth slowing sharply in the fourth quarter of 2010 and the first three months of 2011.

The BCC, which represents firms employing around one in six UK workers, reported strong manufacturing growth but weak performance from the much larger services sector in the last three months of 2010 in its quarterly economic survey.

"With no other UK economic data of note until Wednesday, sentiment is likely to be driven by events in Europe, and the peripheral bond markets." said Michael Hewson, analyst at CMC Markets.

By Neal Armstrong
(Editing by Hugh Lawson)