* Stg/dlr in sight of 2012 high, UK CBI data at 1100 GMT * Resistance around 200-day moving average at $1.5903 * Euro supported near 2-1/2 mth high vs pound as LTRO looms * Citi recommends selling euro/sterling, target 82.50 pence By Jessica Mortimer LONDON, Feb 28 (Reuters) - Sterling rose against the dollar on Tuesday, coming close to a 3-1/2 month high and tracking gains in the euro ahead of an injection of cheap funds by the European Central Bank that is expected to boost investors' appetite for riskier currencies. The pound may get an additional boost from a UK retail sales survey from the Confederation of British Industry at 1100 GMT if it adds to signs that the economy is picking up at the start of the year. Sterling was up 0.25 percent at $1.5855 against the dollar, in sight of the 200-day moving average at $1.5903, Monday's high of $1.5904 and the Feb. 8 peak of $1.5929, which would mark its highest since mid-November last year. "The assumption is that if we have reasonable data from the CBI that will be encouraging. There might be another attempt to break the top at $1.59 but I don't think that it will necessarily have much momentum above there," said Jeremy Stretch, currency strategist at CIBC. The euro and other riskier currencies and assets were expected to be supported by the ECB's fresh injection of 3-year money on Wednesday. However, there were risks ahead that could dent the rally in risk assets, including worries about whether Greece can implement the harsh austerity measures demanded of it. Concerns the Bank of England may opt for another round of monetary easing could also limit gains for the pound. Sterling was well above last week's low of $1.5648, plumbed after the release of more dovish-than-expected BoE minutes which pointed to a risk that policymakers could opt for more quantitative easing to boost the economy later this year. "$1.5905 is a key level technically for sterling/dollar. I think eventully we will break higher, but it needs $1.3500 to go in euro/dollar," a London-based trader said. Euro/dollar was last up 0.4 percent at $1.3455. Markets shrugged off ratings agency Standard & Poor's cutting of the long-term rating of Greece to 'selective default' after the country embarked on a bond swap with private sector creditors, a move which had been largely expected. The euro was up 0.1 percent at 84.79 pence, above its 100-day moving average at 84.69 pence and not far from a Friday's 2-1/2 month high of 85.06 pence. Citi strategists issued a sell recommendation on the euro against sterling, entering a short euro position at 84.73 pence and targeting a drop to 82.50 pence, with a stop loss at 85.55 pence. They argued markets had "gone too far in buying EURGBP last week" and that the sell-off in sterling following the BoE minutes provided an opportunity to buy. They also said many of the positives for the euro of the upcoming long-term refinancing operation (LTRO) were already in the price. The single currency has rallied broadly in recent sessions following a deal on Greece's bailout package and as market players positioned for Wednesday's liquidity injection by the ECB.

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