LONDON: Sterling traded near a seven-week high against the dollar and 3-1/2 year peak versus the yen on Friday, supported by demand for higher-yielding alternatives to the Japanese currency. Gains were likely to be limited, however, with many investors still nervous about the fragile British economy and the possibility of more monetary easing from the Bank of England in coming months. The pound was close to flat on the day against the dollar at $1.5373, holding within sight of Thursday's high of $1.5412, which was its highest level since Feb. 20. The euro dipped 0.2 per cent to 84.98 pence. Against the yen, sterling was trading at 152.75 yen , within sight of the previous day's 3-1/2 year peak of 153.85 yen. The pound has climbed nearly 9 per cent against the yen since the Bank of Japan unveiled radical stimulus measures last week. Analysts said the liquidity unleashed by the BOJ move had spurred investor demand for higher-yielding assets, but the benefits to sterling may only be temporary. "Sterling has picked up a bit of support but I am sceptical about the sustainability of this move," said Ian Stannard, head of European FX strategy at Morgan Stanley. "Things are still mixed on the data front and there are not too many encouraging signs for sterling. A weak growth picture with rising inflation expectations and flexible monetary policy is ultimately going to prove quite a negative mix." Stannard said moves above $1.54 would be limited and the pound would likely fall short of testing $1.55. Many market players speculate the BoE could ramp up their 375 billion pound asset purchase programme when incoming governor Mark Carney takes the helm in July. Asset purchasing involves pumping money into the economy through bond buying, and tends to weigh on a currency by boosting its supply. Investors are also wary of buying sterling before the release of the initial official estimate of first quarter gross domestic product data on April 25. Although above-forecast industrial output data on Tuesday soothed some concerns about the economy sliding into its third recession in less than five years, the outlook remains clouded. A Reuters poll found while the economy will narrowly dodge recession, growth is likely to be tepid and need more support from the BoE. With no UK data scheduled for Friday, strategists at ING said sterling could see some limited demand against the dollar if US retail sales or Michigan consumer confidence data later in the session comes in below forecast.. "However, we believe $1.54/56 will now be the best cable (sterling/dollar) levels for the rest of the year and corporates or investors with long sterling exposure should use this window to increase hedge ratios," ING wrote in a note.

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