* Sterling down 0.6 percent vs firmer dollar * Greenback catches bid on Bank of Japan intervention * Euro slips to 2-month low versus pound of 86.84 pence * BoE holds rates, inflation report keenly awaited next week By Neal Armstrong LONDON, Aug 4 (Reuters) - Sterling slipped back against a broadly firmer dollar on Thursday, as the greenback gained on the Bank of Japan currency intervention, though the pound did briefly manage to touch a two-month high against the euro. The Bank of England left interest rates on hold as widely expected and stuck with a pause in its asset purchase programme, with the pound showing little immediate reaction. Traders' focus was largely on the yen which fell broadly as the Bank of Japan bought billions of dollars in an attempt to weaken its currency. Sterling was down around 0.6 percent on the day at $1.6331, as the dollar rose one percent versus a basket of currencies after the BoJ's intervention. "Sterling is largely being driven by international forces today," said Audrey Childe-Freeman, currency strategist at JP Morgan Private Bank. "The BoE inflation report will guide us as to how close we are to another round of quantitative easing," she added. The BoE's quarterly inflation report is scheduled for next Wednesday. Markets will be focused on the latest forecasts for inflation and growth to see if another round of quantitative easing may be needed to revive a flagging economy. Investors have steadily priced out the chances of a rate hike and are not expecting an increase in 2012, whereas late last month they expected a rate rise in November 2012. "We suspect that the MPC will have had to revise its growth projections downwards after soft outturns, but with the growth/inflation trade-off worsening the inflation projections might not be lowered very much," analysts at National Australia Bank said in a note. "We continue to believe that the MPC can afford to wait until September 2012 before raising the Bank rate, especially in light of continued turbulence in the euro zone." EURO AT 2-MONTH LOW Analysts said sterling rallies were being hampered by the fragility of the UK economic recovery, particularly after data earlier this week showed manufacturing activity contracting. The euro briefly traded at 86.84, its lowest since May 31, weighed down by concerns over euro zone debt and as traders reported stop-losses being targeted in the 86.90/95 area. More stops were cited at 86.80/70 with bids ahead. The euro later recovered back to 87.12. "The weaker euro scenario still prevails while below the 88.00 resistance level, and as such the potential for further weakness remains," said Michael Hewson, analyst at CMC Markets. (Editing by Stephen Nisbet/Anna Willard)

Source