(Reuters) - Sterling fell to a one-month low against a firmer euro on Friday as Greece's lenders edged closer to a funding deal for the indebted country and after better-than-forecast German data. The euro rose to 80.97 pence, its highest since October 25, though traders reported strong demand to sell the euro ahead of 81.00 pence, which may slow its gains. "If there is a greater likelihood of a deal for Greece, euro/sterling will go higher ... it may take a slight bit of the safe-haven shine off sterling," said Simon Derrick, head of currency research at Bank of New York Mellon. "But there are plenty of other reasons out there for downward pressure on the euro and it is not going to soar," he said, adding he did not expect the single currency to rise much beyond 81.50 pence. Sources told Reuters that Greece's international lenders were edging closer towards agreeing measures to cut Greek debt, although it still has to fill a 10 billion euro gap to gain the International Monetary Fund's approval. The euro then extended gains after the Ifo German business climate index unexpectedly rose to 101.4 in November, above forecasts for 99.5, though traders remained cautious as other data has pointed to a deepening euro zone slowdown. The pound was steady against the dollar at $1.5940, stuck below Thursday's two-week high of $1.5978, with traders reporting demand to sell the currency from $1.5980 up to $1.60. Concerns about a weak economy and the possibility of further monetary easing from the Bank of England may hamper the pound, but BNYM's Derrick said international investors would still view sterling as an attractive alternative to the euro. Recent data has suggested the UK economy may struggle to sustain growth in the current quarter, keeping alive chances of more quantitative easing, even though the Bank opted not to increase asset purchases under QE earlier this month. "Despite the halt in the asset purchase programme, the Bank keeps a very accommodative monetary policy stance. In this respect, there is no reason to anticipate a big leap higher for sterling," KBC analysts said in a note to clients. "We expect more sideways trading in the 81.65/79.23 trading range." QE typically weighs on a currency because it increases the supply.

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