* Sterling firm vs euro, but lags U.S. dollar * U.S. jobs data the key factor * Euro/sterling focus at 79.505 pence LONDON, July 6 (Reuters) - Sterling headed towards its highest level against the euro in three and a half years on Friday as the single currency struggled after a European Central Bank rate cut the previous day. The pound slipped against the dollar after the Bank of England injected more stimulus into the UK economy on Thursday, although most traders were wary of taking fresh positions ahead of U.S. non-farm payrolls data due later in the session. Analysts turned slightly more bullish on the sluggish U.S. labour market after private employers stepped up hiring in June adding 176,000 new workers, according to data on Thursday. That suggested Friday's figures may also come in better than initially expected. In response to the stronger number, Goldman Sachs raised its forecast for the non-farm payrolls to a 125,000 gain from 75,000. Any disappointment could support speculation that the Federal Reserve will have to resort to more quantitative easing in coming months, a factor that will weigh on the dollar. The euro fell against sterling to 79.75 pence, putting it very close to a low of 79.505 reached in mid-May, below which would mark its weakest since the aftermath of the Lehman's collapse in 2008. On Friday, the euro was nursing heavy losses after having fallen sharply against other major currencies the day before. Analysts said the ECB decision to lower its refinance and the deposit rates may result in the euro vying with the dollar as the currency of choice for funding purchases of higher-yielding assets. "The euro's fall against sterling is a reflection of the overall weakness in the single currency," said Peter Kinsella, currency strategist at Commerzbank. "We expect the euro to test the 79.50 low and could fall to 77.70 pence in the medium term." Sterling was subdued against the dollar, however, hovering just above recent lows at $1.5510. It has support at its June 28 low of $1.5485 but was on track for its biggest weekly losses since early June, hurt by the BOE's decision to opt for more additional stimulus. The BoE on Thursday increased asset purchases under its quantitative easing programme by 50 billion pounds in order to aid a flagging economy. The decision was announced just minutes before the ECB decision to lower rates. While more quantitative easing is usually seen by the market as negative for sterling, many analysts expect the pound to gain against the euro as worries about Europe's debt crisis offset looser UK monetary policy. Many also view the BoE's move to ease monetary policy as more proactive, in contrast to the ECB, on which pressure has been building to announce more stimulus to support a euro zone economy that is on the brink of a recession. However, looser monetary policy and a weak UK economy is likely to see the pound struggle against growth-linked currencies like the Australian dollar and the Swedish crown, whose countries' higher interest rates make them more appealing. Traders said UK factory gate prices due for release at 0830 GMT are unlikely to sway trade. The data is likely to highlight easing price pressures that would give the BoE more leeway to pursue loose monetary policy in coming months.. (Reporting by Anirban Nag; Editing by Susan Fenton)

Source