(Updates, adds quote) * Pound higher vs dollar, resistance at $1.5600 * Euro/sterling off highs of 81.57 pence * Short-covering bounce in euro likely to fade soon LONDON, June 11 (Reuters) - Sterling rose against the dollar on Monday, tracking other riskier currencies on relief that Spain's ailing banking sector secured external funding and pared losses against the euro, which had jumped to a near 1-1/2 month peak. Traders said investors cut large bearish bets on the common currency but the bounce showed signs of waning on nervousness ahead of Greek parliamentary elections this weekend and as terms of the Spanish deal are still not clear. Many saw the bailout as a short-term fix which did little to change the euro's bearish outlook in the near term. The euro zone agreed on Saturday to lend its fourth-largest economy up to 100 billion euros ($125 billion) to stave off the threat of a bank run and with one eye on Greece, where the crisis could heat up again after the elections. Sterling was up 0.5 percent against the dollar at $1.5545, not far from a one-week high of $1.5601 struck on Thursday. It rose to a session high of $1.5582 with traders citing offers to sell above $1.5600. The euro was marginally higher at 80.755 pence, having given up most of its gains made earlier in the session. The euro rose to 81.57 pence during the Asian session, its highest level since early May, before dropping back. The euro was also marginally higher on the day against the dollar at $1.2540, having jumped more than 1 percent to $1.2672, its highest in nearly three weeks. Richard Driver a currency strategist at Caxton said the euro's rise was a knee-jerk reaction to the Spanish bailout news. "This will not last as we see euro/sterling head back towards 80 pence and sterling will struggle above $1.56... Nervousness about Greece will kick in before the weekend." Many investors fear a victory for far-left anti-bailout parties in the country's parliamentary election could push Greece towards a chaotic exit from the euro zone. Analysts expect the pound to gain against the euro as edgy investors again seek alternatives to euro zone assets. But a worsening euro zone crisis also means the risks of a slowdown in the UK are building up, given the region is Britain's biggest trading partner and UK banks have sizeable exposure to the region. Bank of England (BoE) policymakers have said more asset purchases, or quantitative easing, could be on the way if the situation in the euro zone deteriorates, all of which is likely to keep sterling's gains against the dollar limited. "The BoE appears to also be waiting to see how eurozone developments in Spain and Greece will affect Britain's outlook before launching further quantitative easing," UBS analysts said in a note. "We believe investors should remain wary of sterling/dollar, as the Fed may not take aggressive steps at its June meeting, while the risks remain that the BoE votes to start a third round of QE in July or August." (Reporting by Anirban Nag; Editing by Toby Chopra)

Source