* Euro/sterling hits 83.91, highest in almost 4 weeks * Markets wary before UK GDP data, BoE minutes this week * BoE's Posen: economy slightly better but more QE likely By Jessica Mortimer LONDON, Jan 24 (Reuters) - Sterling fell to its lowest since late December against the euro on Tuesday, weighed down by fears of economic weakness that may prompt further monetary easing from the Bank of England. The euro was also supported by better-than-expected euro zone data and hopes of an eventual deal to restructure Greek debt, which prompted investors to trim some of the hefty short positions that have built up in the single currency. Analysts said upcoming British data and events could add to concerns about the prospect of more quantitative easing as austerity measures and the impact of the euro zone debt crisis hurt the economy, potentially weighing further on sterling. Gross domestic product data on Wednesday is expected to show the Britain's economy contracted by 0.1 percent in the fourth quarter, which would add to fears that the economy is sliding into recession. The euro was down 0.2 percent at 83.53 pence, having hit a high of 83.91 pence, its strongest in nearly four weeks. This could open the door for it to break above the Dec. 29 high of 84.22 pence though traders said offers around 84.00 pence may cap its rise. Surveys showing a surprise upturn in the euro zone services sector helped lift the euro, raising hopes the region may yet escape recession. However, most analysts believe the scope for further euro gains will be limited due to concerns about the risks of the euro zone debt crisis deepening. "We've had a wave of optimism towards the euro over the last couple of days and expectations that we'll get this Greek deal before the end of the week," said Geraldine Concagh, economist at AIB Group Treasury in Dublin. "The market is very short of the currency so we are seeing a wave of short covering, underpinned by that pick-up in optimism. We could see further gains over the short-term, but I think it remains vulnerable," she said, adding the euro could rise to 84 pence. UK EVENT RISKS Concagh said there were likely to be negatives ahead for sterling, with the market positioning for more QE from the Bank of England in February and a weak GDP number on Wednesday. Market players were also wary that a speech by BoE Governor Mervyn King later on Tuesday and Wednesday's release of minutes of the most recent BoE policy meeting may add to the expectations for an increase in asset purchases next month. BoE policymaker Adam Posen said on Monday Britain's economic outlook had improved slightly but more quantitative easing would probably still be needed. "There are a number of catalysts that could take euro/sterling higher," said Jeremy Stretch, currency strategist at CIBC. "There is a risk of a negative GDP number and this could raise the risk of substantial QE down the track." Against the dollar, sterling was steady at $1.5567, though it stayed close to a near three-week high of $1.5602 hit on Monday, with traders citing demand for sterling/dollar from Middle East accounts. The pound stayed stuck below the 55-day moving average around $1.5587 and analysts said it could struggle to make a sustained break above $1.5600, particularly if worries grow about the outlook for the UK economy. Data on Tuesday showed British public borrowing was lower than expected in December, thanks to stronger tax receipts, but total outstanding debt rose above the 1 trillion pound mark for the first time on record. (Additional reporting by Clare Kane; editing by Anna Willard)

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