* Sterling slips after hitting 82.22 pence, highest since Sept. 2010 * Profit-taking allows euro to pare losses * Outlook for single currency clouded, debt auctions loom By Nia Williams LONDON, Jan 9 (Reuters) - Sterling dipped against the euro on Monday but hovered within sight of a 16-month high, with investors cautious on the single currency after more negative news on Greece over the weekend added to concerns about euro zone sovereign funding pressures. Traders said some market players were booking profits on bets against the euro, but the outlook for the single currency was bleak ahead of Spanish and Italian debt auctions later in the week which are seen as a key test of sentiment. The euro rose 0.3 percent on the day to 82.69 pence, having hit a trough of 82.22 pence over the weekend, its lowest level since September 2010. With no UK economic data due for release on Monday, investors were focused on events in the euro zone. French President Nicholas Sarkozy and German Chancellor Angela Merkel are due to meet to discuss final details of a deal to increase fiscal coordination in the region but analysts said no significant new measures were expected. "There has been a general euro negative atmosphere in most markets recently. This morning we have a little bit more of a risk-on environment and some people are just trying to take profit in euro/sterling," said John Hydeskov, chief analyst at Danske Bank. The Spanish and Italian bond auctions will gauge investor willingness to invest in troubled euro zone sovereigns after newspaper reports over the weekend added to concerns the crisis is intensifying. German magazine Der Spiegel reported the International Monetary Fund was losing confidence in Greece's ability to work off its mountain of debt, while an adviser to the German finance minister told a Greek newspaper a 50 percent write-down on Greek debt holdings was not enough. Sterling has benefited in recent weeks as investors seeking a safe haven from the euro zone debt crisis have redirected portfolio flows into the UK gilt market. But analysts said this flow was more a result of concerns about the euro zone than confidence in UK economic fundamentals. UK growth was weak in 2011 and the Bank of England forecasts it will grow at an annual rate of just 0.8 percent through most of 2012, while others think it may dip into recession. The main event of the week for sterling investors is likely to be the BoE rate decision on Thursday. Policymakers are expected to keep rates on hold at 0.5 percent and maintain the quantitative easing target at 275 billion pounds. Danske Bank's Hydeskov said an increase in the BoE's asset purchasing programme could halt the decline in euro/sterling but policymakers were unlikely to take such a step before February at the earliest. The pound was close to flat against the dollar at $1.5438, trading close to the December low of $1.5361. Technical analysts said a move below that level would re-target the 2011 trough of $1.5270. Morgan Stanley strategists said they expected any sterling rebounds against the dollar to be limited and provide good selling opportunities. "The fundamental position of the UK still appears shaky despite some better-than-expected economic data recently, and the UK's exposure to the eurozone is likely to maintain the pressure on cable," they wrote in a note. (Editing by Catherine Evans)

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