LONDON: Sterling rose against the euro on Thursday, helped by euro zone debt concerns in the run-up to struggling Spain's budget and by M&A news as France's GDF Suez offered 6 billion pounds for the rest of International Power.
The pound also rose versus the dollar though gains were limited after a fresh batch of soft UK economic data and it stayed well below a 4-1/2 month high hit earlier this week.
Data on Thursday showed UK mortgage approvals falling unexpectedly, as well as a record monthly fall in money supply. Mortgage lender Nationwide said house prices suffered their sharpest monthly fall in more than two years in March.
On Wednesday data showed the UK economy contracted more than previously thought in the fourth quarter of 2011, serving as a reminder that the UK economy is struggling to stage a sustainable recovery.
"There has been a lot of focus on the more negative GDP print. There has been evidence that things have been a little stronger in the first quarter but there is still a little nervousness," said Gavin Friend, currency strategist at nabCapital.
The euro eased 0.5 percent to 83.37 pence, retreating from a two-week high of 83.95 pence struck on Wednesday.
Analysts and traders said the bid from French utility GDF Suez for the 30 percent of British electricity producer International Power it does not already own could prompt robust demand for sterling.
Still, the euro stayed within its recent tight trading range, above the March 19 low of 82.83 pence and below the March 13 high of 84.24 pence.
Some in the market said fears of a fresh flare-up in the euro zone debt crisis could weaken the shared currency against sterling in coming weeks and months.
"We are still looking to play euro/sterling from the short side," said Stuart Frost, head of Absolute Returns and Currency at fund manager RWC Partners. "Any bounce to 85 pence is an opportunity to build fresh bearish positions."
In Spain, workers slowed public transport to a crawl and disrupted factories to protest Prime Minister Mariano Rajoy's sweeping reforms a day before a new round of budget cuts.
LIMITED GAINS VS DOLLAR
Sterling was up 0.15 percent against the dollar at $1.5910, pulling away from a low of $1.5842 hit the previous day after the gross domestic product data. However, it was still well away from highs hit on Tuesday when it touched a 4-1/2 month high of $1.6002.
Analysts said sterling would struggle to make a sustained breach of the key $1.60 level, particularly given tough chart resistance just above there at the 200-week moving average, currently around $1.6014.
"With the UK data a bit softer and mortgage approvals disappointing we think sterling has topped out at $1.60," said Richard Driver, currency analyst at Caxton FX.
Peter Kinsella, a currency strategist at Commerzbank, also said sterling's inability to break above the 200-week moving average was a bearish signal for the pound.
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