* Sterling extends rally vs dollar into third day * Euro falls vs sterling, strong corporates bids at 85.20 pence * Sterling supported by safety bids especially vs euro By Anirban Nag LONDON, Nov 29 (Reuters) - Sterling reversed earlier losses against the dollar on Wednesday, as risk sentiment got a boost from China's move to cut banks' reserve ratios, with the pound also likely to benefit from investors seeking to cut exposure to the euro zone. Stocks gained, while growth-linked currencies like the Australian, Canadian and New Zealand dollars jumped after the move which was seen as providing a short term reprieve to investors grappling with an escalating debt crisis in the euro zone and worries about slowing global economic growth. That has led many to cut exposure to riskier assets like stocks, commodities and higher-yielding currencies in the past few months. "It's understandable why the commodity linked currencies should see a quick rally but I don't think gains in sterling and euro will hold up," said Adrian Schmidt, FX strategist at Lloyds TSB. "To me the autumn statement yesterday shows how ropey growth prospects for the UK are and for me sterling is sailing in the same boat as the euro." Sterling was up 0.15 percent against the dollar at $1.5637 , and on track for a third straight day of gains. Traders cited support at around $1.5470 -- the pound's low on Tuesday -- with intraday bids at $1.5440 and offers at $1.5620/30. Against the euro, sterling was slightly higher on the day. The euro was down 0.1 percent at 85.27 pence, with traders citing strong bids at 85.20 and month-end demand from euro zone buyers that are likely to check the euro's losses. The outlook for the single currency remains bearish, however, given the euro zone's escalating debt problems. In contrast, British finance minister George Osborne offered a fresh commitment on Tuesday to fiscal austerity plans aimed at curbing the UK's budget deficit. "We are seeing German bund yields rise and there will be investors seeking to get out of the euro zone (and) into the UK," said Gavin Friend, currency strategist at nabCapital. "What we have out of the UK is a credible plan to get back to growth and not too much risk-taking that could lead to a change in ratings." That is likely to underpin sterling against the euro in coming months, with a chance the euro could ease to around 84 pence, he added. OPPOSING FORCES Osborne unveiled much lower growth forecasts and raised government borrowing targets in the autumn budget statement on Tuesday. But he stuck to austerity measures, which are now likely to extend beyond the next election in 2015. Given the debt problems afflicting the euro zone and the United States, analysts said having a credible plan to reduce the deficit should help the country retain its prized triple-A rating and encourage more safe-haven flows into UK government bonds. That in turn is likely to support the pound, despite the prospect of more quantitative easing by the Bank of England and the risk of recession. More monetary stimulus is considered bearish for a currency as it increases the supply. Foreign investor inflows into UK gilts in October totalled 12.5 billion pounds, said to be the highest level in 18 months. That follows net purchases of 9.2 billion pounds in September. One of the reasons sterling has held above its October low of $1.5270, struck immediately after the Bank of England announced more quantitative easing, has been inflows from investors cutting exposure to the euro zone. "Despite the gloom from yesterday's Autumn Statement the pound has continued to hold up well, largely because we're not part of the euro," said Michael Hewson, market analyst at CMC. Not all was bright for sterling. Rating agency Fitch warned that Britain's ability to absorb further economic shocks while keeping its triple-A credit rating is "largely exhausted" unless the government takes further deficit-cutting steps. A fresh private sector survey showed British consumer confidence edged up slightly in November but was still close to a two-year low and the outlook remains gloomy.. (Editing by Catherine Evans/Ruth Pitchford)

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