* Trade-weighed sterling firm at 83.1, highest since Aug. 2010 * French elections, Netherlands concerns to weigh on EURGBP * Strong bullish signal for sterling/dollar from 200-wk ma By Nia Williams LONDON, April 23 (Reuters) - Sterling was steady at a 20-month high against a trade-weighted basket of currencies on Monday, holding gains made last week on upbeat UK retail sales data, and looked set to edge higher against the euro as European political concerns mounted. The common currency dipped 0.3 percent against the pound to 81.69 pence, close to a 20-month low of 81.62 pence, as markets digested the first round of the French presidential election and the failure of Dutch budget talks. With incumbent French leader Nicholas Sarkozy coming second to challenger Francois Hollande and the Netherlands now likely to face fresh elections, investors fretting about euro zone political risks may look to UK assets as safer alternatives, analysts said. "If you were to be bullish on sterling on any cross it would be against the euro. We believe the UK economy will show gradual improvement going forward and the market will recognise the UK is in a much better situation than the euro zone," said Sara Yates, currency strategist at Barclays Capital. "In the euro area there are an awful lots of risks coming up, that helps reignite concerns about the political side." A German PMI survey unexpectedly showed manufacturing shrank at its fastest pace in nearly three years in April, also boosting the pound against the common currency. Trade-weighted sterling hit 83.1 according to Bank of England data, matching the high from Friday when better-than-expected UK retail sales data raised expectations the country may avoid slipping into recession. A move above 83.1 would put the trade-weighted index at its highest level since August 2009. Sterling retreated from a 5-1/2 month high against the dollar of $1.6155, as euro zone concerns prompted broad demand for the safe haven greenback. The pound was last down 0.2 percent on the day at $1.6090, although the technical outlook remained strongly bullish after sterling closed above its 200-week moving average around $1.5940 last week. With no UK data scheduled for Monday, the pound was likely to be driven by sentiment towards the euro zone. But public sector borrowing data on Tuesday and the first estimate of 2012 first quarter gross domestic product data on Wednesday could provide more direction. GDP data is expected to show modest 0.1 percent growth after the economy shrank 0.3 percent in the final quarter of 2011, but some strategists said it could disappoint. "There is a possibility of a downside surprise and Q1 GDP could show a further contraction, which could weigh on demand for sterling ahead of Wednesday," Lloyds analysts said in a note. (Editing by Catherine Evans)

Source