* Sterling steady near five-year highs versus dollar * Firm economic data boosts expectations of early rate rise * BoE committee to consider range of data * Short-dated gilt yields near three-year highs By Patrick Graham LONDON, May 8 (Reuters) - Sterling held onto this week's gains on Thursday after the Bank of England, as expected, delivered no new signal on policy for an economy swiftly approaching the conditions it has set for considering a rise in interest rates. Growing evidence of economic improvement in Britain, and the prospect of more merger-generated corporate flows, have kept the pound on the rise this week. There are the beginnings of speculation in the market that the bank could even raise interest rates this year. Yields on two-year UK government debt are respectively 37 and 60 basis points above their U.S. and euro zone equivalents. "Although there may still be an ongoing debate among MPC members over the degree of spare capacity (in the economy), these improving fundamentals will be difficult to ignore and markets are increasingly pricing in a rate hike as early as December or January," said Alex Edwards, head of the corporate desk at UKForex in London. That said, analysts at a number of the bigger banks have been saying for weeks that the bulk of the good news looks priced in to sterling and that the push this week towards $1.70 has stemmed as much from broader weakness of the dollar as pound strength. Sterling was only slightly higher at $1.6964, having risen as high as $1.6996 on Tuesday. It last topped $1.70 in August 2009. It blipped lower against a euro that was strengthened by some speculative positioning around the European Central Bank's decision to keep its own rates unchanged. "We're not calling for a big push past $1.70 at the moment," said Michael Sneyd, a strategist with BNP Paribas in London. "The market has lost momentum again and it may depend on the dollar weakening further (to push sterling higher)." No move had been expected by the BoE on Thursday, and at meetings where it does not alter policy the bank does not as a rule issue any statement. But a number of analysts do think some members of the council may begin to favour an earlier step than the 2015 move previously flagged by the bank, particularly given the expansion of bits of the UK housing market. Data from Halifax on Thursday showed house prices rose 8.5 percent year-on-year in the three months to April, although monthly growth was a little slower. Concern voiced by a number of BoE officials has spurred speculation that its separate Financial Policy Committee may take action to head off any new bubble in prices. That could delay a rate rise while also point to the strengthening case for one to cool house prices. "What may give us a surprise is the minutes in two weeks time," Sneyd said. "If we start to get a change in tone or possibly a split in the consensus on the council, then that may give sterling the fuel it needs to go higher." Official interest rates remain at record lows of 0.5 percent, but British two-year government bond yields have jumped around 25 basis points in the past two months at a time when the U.S. and euro zone equivalents have only inched higher. "It still looks to us like we're set fair on sterling - it keeps grinding higher," said one London-based dealer. "We've stopped here for a minute, but there's no reason it can't get past $1.70." (Editing by Larry King)

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