* Sterling stays near 20-mth high vs euro, hits 5-mth peak vs dlr * UK retail sales due at 0830 GMT, good number could boost pound * Continues gains as more BoE stimulus looks less likely * Traders say reported options barrier at $1.61 may limit gains LONDON, April 20 (Reuters) - Sterling hovered close to a 20-month high against the euro and hit a five-month peak against the dollar on Friday, and could get a further boost if UK retail sales come in strong and give further evidence that an economic recovery is on track. The pound has posted strong gains this week after Bank of England minutes on Wednesday suggested the chances of further quantitative easing had dimmed due to concerns that inflation has been higher than it expected. It has also benefited from signs of improvement in the UK economy, encouraging investors seeking to exit the euro to buy the pound as worries about worsening debt problems in Spain intensify. Data due at 0830 GMT is expected to show UK retail sales grew by 0.5 percent month-on-month during March, improving after a 0.8 percent fall the previous month.. The euro was steady at 81.85 pence, near a trough of 81.62 pence hit on Thursday, its lowest level since late August 2010. "There has been a gradual build of stronger appeal for sterling at a time when the euro zone situation is catching the headlines and is a worry," said Audrey Childe-Freeman, global head of currency strategy at JP Morgan Private Bank. "Euro/sterling could quickly move lower if we get good news on the UK economy because the market is already inclined to push sterling higher". Further falls in the euro would see it target support at 81.43 pence, a level not seen since Aug. 23, 2010. A break below that could see it drop towards 80.67 pence, the low struck in June of the same year. The first round of the French presidential elections, which take place on Sunday, could be another negative for the euro. Financial markets are concerned that Socialist Francois Hollande, who looks to set to win, may keep a looser grip on the government purse-strings than current President Nicolas Sarkozy. Sterling's strong gains against the common currency continued to buoy its trade-weighted index, which stood at 82.9 , matching the 20-month high hit on Thursday, Bank of England data showed. Against the dollar, the pound rose to $1.6083, its highest since last November. However, traders cited strong offers ahead of a reported options barrier at $1.61 which could cap sterling's gains. BOE SUPPORT Sterling could benefit against the dollar as investors are wary of piling into the U.S. currency given that further easing by the U.S. Federal Reserve is still an option. In contrast, minutes from the BoE's last policy meeting showed the committee voted 8-1 against further stimulus. One policymaker, Adam Posen, who had consistently voted for more stimulus, moved out of the dovish camp and another now saw the decision as "finely balanced". Speaking on Thursday, Posen said although some survey data had weakened in the past month, overall it confirmed an upward trend in Britain's underlying growth, and gave him confidence the economy did not need additional stimulus. But some analysts were wary that the pound could come in for a correction if retail sales are weak, especially with the first estimate of first quarter UK gross domestic product due next week. "Today's March retail sales could put the newly found sterling optimism to the test," Citi currency strategist Valentin Marinov said in a note to clients. "Potential disappointments will highlight the downside risks to growth ahead of the Q1 GDP data release ... We suspect that sterling could struggle to extend its gains against the dollar as a result". Uncertainty about the euro zone is likely to leave euro/sterling close to recent lows, however, he said.

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