No Carney boost for sterling after further data blow

(Updates prices, adds quote)

By Patrick Graham

LONDON, Oct (HKSE: 3366-OL.HK - news) 9 (Reuters) - Sterling sank along with the dollar against the euro on Friday, with further arguments for holding off on any bets on rises in UK and U.S (Other OTC: UBGXF - news) . interest rates prodding it a full percentage point lower against the single currency.

Data showed Britain racked up a larger than expected trade deficit in August, while construction output surprised by sinking in both annual and monthly terms, following the cautious tone of U.S. Federal Reserve minutes on Thursday.

The UK construction data, down 1.3 percent on the year, were the latest to cast doubts on the pace of an economic recovery that had provoked expectations, now cooled, of a rise in interest rates around the end of this year.

It (Other OTC: ITGL - news) was all in stark contrast to the rhetoric of Bank of England Governor Mark Carney, who stressed in Peru on Thursday that the bank is not bound to wait for a move in U.S. interest rates before it raises its own.

That pushed sterling 0.2 percent higher against the dollar in early trade in London before it fell back after the data.

By 1519 GMT, sterling was 0.2 percent lower on the day at $1.5314. Against the euro it traded down 1.2 percent at 74.25 pence per euro.

"Today's trade is some measure of how little faith the market has in Carney. If people believed him that the BoE (Shenzhen: 200725.SZ - news) can go first, then sterling would be at $1.55 in the blink of an eye," said a senior dealer with one London bank.

"Clearly no one does (believe him)."

There are other concerns coming over the horizon for the pound. This week's party conference for the ruling Conservative Party has glossed over internal divisions over whether Britain should stay in the European Union. Some traders argue that the run in over the next year or so to an in-out referendum over Europe will highlight the country's longer-term weaknesses.

"It was very telling this week that (PM David) Cameron didn't mention Europe. That's going to be a big issue over the next 12 months," said another senior trader at an international bank in London.

"Just the scale of the deficit worries me. This country has kept itself afloat by selling off all sorts of assets, but at some point you need to even that up -- and sterling has to fall really really far."

He said he was considering taking a $1.40 one-touch option on sterling for the next six months, a bet that pays out if sterling trades at $1.40 at any time in that period. (Reporting by Patrick Graham; Editing by Catherine Evans)