Sterling subdued by Spanish concerns, but outperforms euro

LONDON: Sterling fell for a third straight day against a buoyant US dollar on Wednesday as perceived riskier currencies were under pressure on growing concerns about Spain dithering on a bailout.

But the UK currency's losses were likely to be checked as it outperformed the euro. The single currency has retreated from a three-month high struck on Sept. 14 to trade near its lowest levels in three weeks against the pound. The euro was slightly lower on the day at 79.60 pence.

The pound is likely to be helped by talk of farm subsidy payments due later in the week, which the European Union makes to the UK once a year. The subsidy could see 3 billion euros of flows into the UK, market players said.

Against the dollar, sterling fell 0.15 percent to $1.6165 , retreating from a 13-month high of $1.6310 hit last week with bids cited by traders at $1.6150.

"A risk-off mood is settling over the markets and that is impacting sterling/dollar," said John Hardy, FX strategist at Saxo Bank.

"But the interesting move is in euro/sterling and it looks like the drop below 80 pence could see it ease back to 77.50 pence in the near term as progress by Spain towards a bailout remains in doubt."

The European Central Bank's plan to ease the region's debt crisis by buying indebted countries' bonds has supported the euro in recent weeks, but the plan cannot be implemented until a country requests a bailout.

Spain's Prime Minister Mariano Rajoy said on Wednesday he was ready to seek a new rescue package for his troubled country but only if its debt financing costs remain too high for too long.

Traders said the longer Spain takes to request a bailout, the more investors will turn cautious about riskier assets and currencies, including the pound.

UK business lobby CBI will release a survey on retail sales for September. Economists forecast sales to rebound in September from a month earlier, but sterling is unlikely to get much of a lift from that data.

The UK economy is in its third quarter of recession, and while recent data has suggested the economy may be rebounding, expectations of more quantitative easing by the Bank of England later in the year, which would be negative for sterling as it would increase supply of the currency, remain in place.