* Euro/sterling up 0.2 percent at 83.37 pence * Short positions squeezed in thin year-end trade * Euro zone's debt crisis to check the rally * UK GDP revision, current account data due By Neal Armstrong LONDON, Dec 22 (Reuters) - Sterling ceded ground to a firmer euro on Thursday as some short positions in the common currency were squeezed amid slightly better risk appetite, but overarching concerns about the euro zone's debt crisis were expected keep the rally shallow. The pound was able to rise against a weaker dollar in thin year-end trade, as it traded with modest gains for the year as a whole, but the recent firmer tone in the greenback amid a flight to safety was seen persisting into 2012. The euro was up 0.2 percent for the day at 83.37 pence after a slide to 11-month lows of 83.02 the previous day following significant demand at the European Central Bank's three-year tender highlighted the severity of the region's funding crisis. Traders said Wednesday's break below the 83.30 level was significant, equating to the key 1.20 area in sterling/euro , adding next support was at the 2011 low of 82.85. "Structural headwinds in euro zone are far more pronounced in the euro zone than the UK, so I'd be far more inclined to sell into the euro rally here," said Jeremy Stretch, currency analyst at CIBC. "There's slightly better risk appetite today but I wouldn't read too much into it as we approach year-end." he added. Markets are on alert for what looks likely to be a widespread downgrade of euro zone countries' sovereign ratings after S&P warned of the consequences of a failure by politicians to reach agreement on how to solve the debt crisis. The euro zone debt markets are expected to come under fresh pressure with some 230 billion euros of bank bonds, up to 300 billion in government bonds, and more than 200 billion euros in collateralised debt all maturing in the first quarter of 2012. Sterling was up 0.3 percent for the day against the dollar at $1.5716, lifted by reported Middle-Eastern demand in thin trade. Near-term resistance was at $1.5780, the late November high. Sterling is up 0.7 percent on the year against the greenback. "For now the $1.57/1.58 area might provide reasonable levels to sell again into 2012 as I think dollar will probably have a robust first quarter," said Stretch. Concerns over the fragility of the UK economy are seen lasting well into the new year, with BoE policymakers leaving the door open for an additional injection of cash through quantitative easing in February. Final UK GDP data for the third quarter will be released at 0930 GMT with economists in a Reuters poll expecting an unchanged reading of 0.5 percent, as fiscal cuts, high inflation and deteriorating conditions in the euro zone weigh on the UK economy. Separately, third quarter current account data is expected to show the deficit increasing to around 6.05 billion pounds versus the previous 2.02 billion. (Editing by Toby Chopra)

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