* Euro zone's debt crisis euro pinned near lows * Key support at 2011 low of 82.85 pence * UK Q3 GDP revised higher but challenging 2012 ahead By Neal Armstrong LONDON, Dec 22 (Reuters) - Sterling stayed closed to an 11-month high against the euro on Thursday as ongoing concerns about the euro zone's debt crisis weighed on the common currency, while slightly better risk appetite supported the pound against the softer U.S. dollar. Data showing Britain's economy unexpectedly grew faster than first thought between July and September had little impact, with economists forecasting a sharp slowdown at the end of this year and early in 2012. The euro was flat on the day at 83.20 pence, having fallen to 83.06 pence during the day which was close to its 11-month low of 83.02 struck on Wednesday. Traders said Wednesday's break below the 83.30 level was significant, equating to the key 1.20 area in sterling/euro , adding next support was at the 2011 low of 82.85. "Euro/sterling does look heavy," said a London based spot trader. "It will be very interesting if it manages to drop below the 83 pence mark and there are some stops below there. Key will be the support at 82.85 which remains unbroken so far." UK gilts outperformed German Bunds on Thursday with the spread over 10-year Bunds four basis points tighter on the day and highlighting the view that investors were seeking the safety of British government bonds given the euro zone crisis. "Structural headwinds are far more pronounced in the euro zone than the UK, so I'd be far more inclined to sell into the euro rally here," said Jeremy Stretch, currency analyst at CIBC. "There's slightly better risk appetite today but I wouldn't read too much into it as we approach year-end." Markets are on alert for what looks likely to be a widespread downgrade of euro zone countries' sovereign ratings after S&P warned of the consequences of a failure by politicians to reach agreement on how to solve the debt crisis. The euro zone debt markets are expected to come under fresh pressure with some 230 billion euros of bank bonds, up to 300 billion in government bonds, and more than 200 billion euros in collateralised debt all maturing in the first quarter of 2012. The pound held on to most of its gains made this week against the dollar in thin year-end trade. Sterling was flat on the day against the dollar at $1.5670, taking a breather after two straight days of gains. It was lifted to $1.5729 earlier in the day on reported Middle Eastern demand and has gained nearly 0.8 percent on the week. Traders cited option expiries at $1.5700 which are likely to sway trade. Near-term resistance was at $1.5780, the late November high. "For now the $1.57/1.58 area might provide reasonable levels to sell again into 2012 as I think dollar will probably have a robust first quarter," said Stretch. RECESSION FEARS Sterling on a trade-weighted basis was at 81.6, close to 9-1/2 month highs of 81.7. Despite the pound benefiting from perceived safety flows into UK gilts, concerns over the fragility of the British economy are seen lasting well into 2012 with BoE policymakers leaving the door open for more quantitative easing in February. The Office for National Statistics revised third-quarter GDP growth up to 0.6 percent on the quarter from 0.5 percent, but left the annual rate of growth unrevised at 0.5 percent. It revised down second-quarter growth to show stagnation from a previous estimate of a rise of 0.1 percent. Separate ONS data showed Britain's current account deficit hitting a record high of 15.226 billion pound in the third quarter, citing a big fall in investment income and a widening in the goods trade deficit. [ID:nL9E7MS04S ] "Our expectation is that the UK is about to undergo a short recession. We think from the first quarter on, but it is possible that contraction actually began in Q4 this year," said Philip Shaw, economist at Investec. "It is pretty clear that 2012 is going to be a challenging year." (Additional reporting by Anirban Nag; Editing by Anna Willard)

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