LONDON: Sterling dipped against the dollar on Monday, but held within sight of a 3-1/2 month high as investors anticipated stronger data in the week ahead that could boost expectations the UK economy will dodge a recession this year. Although there was no UK data scheduled for Monday, CBI distributive trades data and manufacturing and construction PMI surveys for February are due later in the week. The data is forecast to be roughly in line with the previous month but recent surveys have been stronger than expected, adding to bets the UK economy will grow in the first quarter of this year and recover from a contraction at the end of 2011. This could dissuade the Bank of England from pumping further cash into the economy through its quantitative easing program, which tends to be negative for the pound as it involves the bank creating money to use as a stimulus. Sterling was last down 0.1 percent at $1.5868, as some market players booked profits on Friday's rally to $1.5900. That rally cancelled out losses made last week when dovish BoE minutes prompted investors to sell the pound. The UK currency held within sight of the 2012 high of $1.5929, although strong resistance was seen around the 200-day moving average at $1.5905, a level it has failed to hold above since September. Positioning data showed speculators cut their bearish bets against sterling in the week ended Feb. 21, and more of those positions would have been flushed out after the BoE minutes. That could leave room for fresh bullish positions to be initiated, market players said. "I think last week's sell-off in sterling (after the BoE) was a little bit overdone. That means we could find support in the run up to survey data this week," said Jane Foley, senior currency analyst at Rabobank. Although BoE minutes surprised the market by showing two policymakers voted to increase asset purchases to 75 billion instead of 50 billion pounds, some analysts said better data could prompt policymakers to vote more hawkishly in future. "Given the decent pick up in economic activity in the period since Q4, in particular PMIs, it seems that the UK economy should experience relatively decent growth in the first quarter of 2012," said Commerzbank analysts in a note. "Should this transpire this will diminish the case for further asset purchases considerably, which should support the pound." LTRO SUPPORTS EURO Perceived riskier currencies were expected to find support against the safe haven dollar ahead of the European Central's Bank's next injection of liquidity though a long-term refinancing operation (LTRO) on Wednesday. The euro was almost flat against sterling at 84.61 pence, but remained close to Friday's 2-1/2 month high of 85.06 pence. The single currency has rallied broadly in recent sessions following a deal on Greece's bailout package and as market players positioned for the LTRO, seen as likely to boost investor appetite to take on risk. Some analysts said the euro may struggle to extend gains further before the LTRO, but could rally afterwards depending on the level of demand for cheap funds from banks. Last time banks borrowed nearly half a trillion euros at rock-bottom rates and a similar allotment is expected on Wednesday. "I think in the last few days, given we have rallied a fair amount in the euro, the market may begin to be reluctant to take out new positions," said Rabobank's Foley. "But if we get a number similar to last time that could promote some optimism post-LTRO."

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