* Sterling down 0.6 pct vs dollar, tracking euro losses * Cable losses seen limited as dollar dogged by debt issues * Analysts argue few fundamental reasons to buy pound By Naomi Tajitsu LONDON, July 29 (Reuters) - Sterling slipped against the dollar on Friday, tracking a slide for the euro after a threat by ratings agency Moody's to cut Spain's credit rating prompted some investors to sell riskier currencies for the dollar. The euro retreated from earlier gains against the pound, with traders citing media reports that Europe's rescue fund may not be in a position lend Greece a second tranche of loans. Adding to the feeling of crisis in Spain, Prime Minister Zapatero called early elections on Friday, although there was little sign of immediate impact on markets outside Madrid. The pound retreated from a six-week high hit versus the dollar hit earlier this month, but further losses were limited as investors remain negative on the U.S. currency as Washington remains far from reaching an agreement on government borrowing before a deadline next week. The pound has rallied this month as investors shun both the dollar and the euro due to fiscal issues plaguing those areas. In contrast, the UK has been making progress on reining in government spending, which has increased it safe-haven appeal. But analysts argue that a struggling economy will keep UK interest rates low, which will limit demand for the country's assets and curb big gains in the pound. While it has benefited from dollar weakness, UBS currency analyst Chris Walker said the pound would struggle to gain more as an agreement on raising the U.S. debt ceiling next week may trigger more demand for the higher-risk Australian and New Zealand currencies. Meanwhile, it could also lose versus the dollar if the ongoing political deadlock raises risk aversion to a point where investors decide the safest place for their investments is in the dollar, the world's most liquid currency. "If you have a big risk correction, Cable is not going to rally as much as high-beta currencies," he said. "And on the flipside if you get talks stalling longer, Cable is one of the pairs which is still overvalued, so you'd want to sell if we see run-back into the dollar on risk aversion." Sterling slipped 0.6 percent on the day to $1.6270, pulling away from a six-week high of $1.6440 hit earlier this week. The euro traded at was 87.53 pence, little changed on the day but down from a session high of 87.85 pence. Market participants said month-end demand for the euro from European central banks had supported the currency in earlier trade, before it fell on media reports which cast doubt on whether Athens will be able to repay its debts. Those reports were in line with a Reuters report on Thursday that Italy's borrowing costs may put in doubt its participation in the next tranche of the Greek bailout in September. A spokesman for the Eurogroup subsequently said Greece would be getting its loans bilaterally from countries as planned. The euro has fallen roughly 3 percent versus sterling so far this month, and a break below 87.05 pence touched last week would take the single currency to its lowest since late May. LIMITED GBP APPEAL Some analysts said that any downgrade to U.S. debt by rating agencies may add some appeal to UK assets as Britain is likely to retain its AAA rating as it has a sound fiscal plan in place. But UK data has been lacklustre of late, with data on Friday showing Britons are reluctant to borrow while consumer confidence slumped this month, fuelling concerns that weak spending will continue to hamper the economic recovery. [ID: nL3E7IT2EG] Friday's figures followed a big fall in CBI retail figures on Thursday, reminding investors that growth in the current quarter is unlikely to be encouraging. Analysts argued the belief that low UK rates and a sluggish economy offered few fundamental reasons to buy UK assets. "There still aren't any great reasons to buy sterling. It still has low yields and its low volatility makes it a good candidate for carry trades," said Commerzbank currency strategist Peter Kinsella. "For those fundamental reasons, in the short- to mid- term there aren't a lot of reasons to buy sterling so many investors are just buying the pound because it's not the dollar or the euro." (Reporting by Naomi Tajitsu; editing by Patrick Graham)

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