* Sterling hits 1-week high vs dollar, buoyed by euro gains * But may pare gains on UK budget statement at 1230 GMT * Forecasts seen showing weaker growth, higher borrowing By Jessica Mortimer LONDON, Nov 29 (Reuters) - Sterling rose sharply against the dollar on Tuesday, buoyed by gains in the euro after Italy managed to sell debt despite having to pay a euro-era high price, while traders said month-end rebalancing flows also supported the pound. However, sterling could come under pressure during British finance minister George Osborne's autumn statement from 1230 GMT, which is expected to include much weaker forecasts for growth and for a borrowing overshoot of at least 86 billion pounds over four years. Although the majority of pro-growth measures and headline figures have already trickled out, analysts said sterling may fall if the statement offers a particularly bearish picture of the economy and prospects for public debt. "There are presentational risks around the forecasts today," said Paul Robson, currency strategist at RBS. "On the headlines sterling may wobble a bit but it won't be the start of a sea change in sentiment because a lot of what we will see today is already known". Sterling briefly gained more than 1 percent versus the dollar to a one-week high of $1.5658, just surpassing resistance at $1.5655, the Nov. 23 high and a 50 percent retracement of its fall from $1.5888 on Nov. 18 to $1.5423 on Nov 25. Traders said it extended gains as stops were triggered on the break above $1.5600. If the pound comes back under selling pressure, however, it could drop back towards last week's low of $1.5423, its weakest in more than seven weeks. The pound was driven by strong gains in the euro versus the dollar as the Italian auction tempered some of the fears that peripheral euro zone countries will struggle to sell debt, although concerns about the severity of the euro zone debt crisis remained. The euro was down 0.3 percent at 85.65 pence, staying in a range above last week's low of 85.45 pence and below the Nov. 22 high of 86.65 pence. Traders cited an options expiry later at 85.60 pence that may influence trade. Technical analysts said the euro remains capped below resistance at the 55-week moving average at 86.71 pence, while a sustained break below the 200-week moving average at 85.64 pence could prompt a fall towards the November 10 low of 84.86 pence. RISKS TO STERLING Any gains for sterling versus the euro were expected to be limited by concerns about the UK economic outlook and the prospect that this will prompt more quantitative easing from the Bank of England, which entails flooding the market with cash. "There remains no fundamental reason to buy the pound, except perhaps for technical models suggesting it is undervalued that may prompt hedge funds or other institutional investors who are looking to diversify their portfolio to buy it," said Lee McDarby, head of dealing for corporate and institutional treasury at Investec. Tuesday's forecasts are also likely to make clear the difficulties the government will face with its plan to cut the UK's deficit when growth is very weak. "While Osborne may announce the expansion of the Treasury's 'credit easing' plan to small businesses and measures to promote growth, we doubt they will be significantly sizeable given the governments commitment to debt reduction. This could see some market nerves for sterling," Lloyds analysts said in a note. BoE policymakers hinted on Monday that more asset purchases may be needed to boost UK economic growth, comments which came after the Organisation for Economic Cooperation and Development said Britain had probably already tipped into recession. Market participants warned that a nationwide strike of public sector workers scheduled for Wednesday may also sour sentiment for UK assets among foreign investors if they call into question the future success of dramatic austerity measures. The pound was little moved by data from Nationwide showing UK house prices edged up in November or by figures showing British mortgage approvals at their highest in nearly two years in October.

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