* Sterling retreats versus dollar, tracks euro/dollar falls * Better UK lending data has limited impact on pound * PMI data later this week key for signals on UK economy By Anooja Debnath LONDON, Oct 29 (Reuters) - Sterling edged lower against the dollar on Monday as concerns about Greece and Spain crimped demand for perceived riskier currencies and outweighed better-than-expected UK lending data. The pound tracked a drop in the euro against the dollar, which was pressured by uncertainty over whether Greece can agree to a deal on austerity while Spain continued to hold out on requesting a bailout. Sterling fell 0.3 percent to $1.6058, retreating from last week's high of $1.6144. Technical charts showed a break below support at the 50-day moving average around $1.6045 could lead to a test of the 200-day moving average around $1.5837. Lending to Britain's consumers rose at the fastest pace in more than 4-1/2 years in September and mortgage approvals for house purchases also beat forecasts, although the figures were unable to boost the pound. "At the margin the data plays slightly positive for sterling given the Bank of England has put so much emphasis on the FLS (Funding for Lending Scheme) and appears to be backing away from additional quantitative easing in the November meeting," said Paul Robson, currency strategist at RBS. The BoE's "Funding for Lending" programme, which offers banks cheap funding if they maintain or increase lending, was introduced earlier this year to help boost UK economic growth. While the better lending data added to signs of recovering economic activity, some strategists said sterling was still vulnerable to developments in the indebted euro zone, the UK's largest trading partner. The pound was steady against the euro at 80.30 pence , with the single currency edging away from Friday's low of 80.02 pence, its weakest level since early October. QE OUTLOOK UNCERTAIN The pound outperformed other currencies last week after stronger-than-expected Q3 growth figures showed the UK had climbed out of recession and reduced bets on the BoE opting for further quantitative easing in November. Recent comments by BoE policymakers indicated that the UK economy was still weak however, and there was still a possibility of further asset purchases to help stimulate growth. Chief economist Spencer Dale said economic growth in Britain would be "materially" lower in the fourth quarter, while deputy governor Charlie Bean warned against getting overexcited about the latest GDP figures. The next focus for investors is Purchasing Managers' Index (PMI) data on manufacturing and construction activity, due later this week, which should indicate whether the strong momentum from the third quarter continued into the fourth. "If we do see a potentially strong PMI, that can really help to boost the pound, as we have seen happen before," said Lee McDarby, head of dealing for corporate and institutional treasury at Investec. Strategists said for the rest of Monday, movements in the pound against the dollar looked set to be driven by events in the United States where Hurricane Sandy has forced hundreds of thousands of people on the U.S. East Coast to flee their homes and shut the U.S. stock market.

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