By Neal Armstrong LONDON, Oct 25 (Reuters) - Sterling hit a fresh six-week high versus a soft dollar on Tuesday, tracking the euro on optimism over the outcome of a key EU summit, but worries over the UK economy were expected to keep sterling undermined against higher-yielding currencies. The euro hit also hit a six-week high as markets anticipated a positive outcome from Wednesday's EU summit at which euro zone leaders are expected to detail plans to leverage the region's bailout fund and recapitalise the banking system in response to its deepening debt crisis. "I expect the EU summit to produce a positive outcome which will be favourable for risk appetite and could well push sterling up towards $1.6250," said Gavin Friend, currency strategist at National Australia Bank. "But on a trade-weighted basis the pound looks over bought and I think you look to sell against the higher-yielders," he added. Sterling was up 0.1 percent against the low-yielding dollar at $1.6013 after rising to its highest since September 8 at $1.6024. Traders reported decent offers capping the rally there with resistance highlighted at $1.6043, the 100-day moving average. On the downside traders reported bids in the $1.5900 region, placed ahead of support at $1.5887, the 50-day moving average. "No one wants big positions on ahead of the EU summit so volumes are fairly light in sterling right now and it will be driven by swings in risk appetite in the near-term," said Chris Walker, currency strategist at UBS. The euro was flat on the day against sterling at 87.10 pence , confined within its recent range. Traders highlighted offers at 87.30/50 and into this month's highs around 88.00, with downside stops reported in the 86.60 area. KING TESTIMONY Sterling was little moved by comments from Bank of England Governor Mervyn King, who testified in front of the House of Commons Treasury Select Committee, explaining the Bank's decision to resume asset purchases this month. King said the Monetary Policy Committee had come very close to restarting QE in September but held off to see if volatility in financial markets would subside, before taking the decision to resume in October. Concerns over UK growth heightened by data showing British households ramped up their savings to their highest in almost a year between April and June, in a sign that a darkening economic outlook may be causing consumers to retrench. BoE policymaker Martin Weale said in an interview on Monday there was a chance the economy could contract in the final three months of this year. On a rare positive note for the UK economy, figures showed Britain's current account deficit narrowed to its smallest in more than 3 years in the second quarter, driven by a rise in investment income from abroad, while the outflow of investment revenue fell slightly. (Editing by John Stonestreet, Ron Askew)

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