* Pound hits 2-week low vs firmer euro, Italy debt sale eyed * Sterling edges up vs dollar, tracking euro/dlr gains * Market expecting more BoE QE in Feb By Jessica Mortimer LONDON, Jan 13 (Reuters) - Sterling fell to a two-week low against the euro on Friday as investors grew less pessimistic on the euro zone debt crisis while expectations grew the Bank of England will opt for more quantitative easing. Hopes rose that Spain and Italy could make it through the next few months when they must issue a substantial amount of debt, after Spain sold double its maximum targeted amount in debt sales on Thursday. Italy is seeking to match that success in its bond sales on Friday, which could give the euro a further boost. Meanwhile, sentiment towards the pound was knocked after Thursday's unexpectedly weak industrial production added to concerns the UK could slip into recession and fuelled expectations the BoE will ease monetary policy further. The euro rose to a high of 83.76 pence, its strongest since Dec. 30 and well above a 16-month low of 82.22 pence hit earlier this week. The euro extended steep gains on Thursday as investors trimmed hefty short positions they had previously built up in the single currency. "Sterling has fallen against the euro, partly on technical factors but also due to fundamentals as it does seem more and more that the BoE will do more QE next month," said Kathleen Brooks, research director at FOREX.com. "There were some real positives for the euro yesterday with the bond auctions and it does seem as though there could be some more legs in this rally in the euro". On Thursday, the Bank of England left interest rates and its quantitative easing target unchanged, with some having seen a risk of policymakers announcing more QE early. However, the central bank is widely expected to opt for more QE in February to aid a fragile economy. By contrast, European Central Bank President Mario Draghi was more upbeat on Thursday, saying the bank's flood of cheap 3-year loans supporting morale across the euro zone. "We note that the euro/sterling rebound has breached down trendline resistance, suggesting scope for some further near-term gains," analysts at Morgan Stanley said in a note, adding they expect more QE from the BoE next month. They believe sterling is "vulnerable" and "exposed to a more significant decline", having put in a more mixed performance since the beginning of the year while the euro clearly underperformed. Sterling was steady versus the dollar at $1.5347, recovering after dropping to a three-month low of $1.5279 on Thursday and helped by gains in the euro versus the dollar. The pound was off the day's high of $1.5410, with traders citing selling above $1.5400 and technical resistance seen at $1.5420-40. A break below Thursday's low could see it drop below the 2011 low of $1.5270 to mark its weakest since late July 2010. (Reporting by Jessica Mortimer. Editing by Jeremy Gaunt.)

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