Sterling at 12-week high as investors step up dollar selling

(Updates with dollar reaction to US data, adds quote)

By Jemima Kelly

LONDON, April 29 (Reuters) - Sterling hit its strongest in 12 weeks against the dollar on Friday, as investors sold the U.S (Other OTC: UBGXF - news) . currency on expectations that the Federal Reserve will not hurry to raise interest rates in coming months.

The dollar extended losses after data showed U.S. inflation barely rose in March as consumer spending remained tepid, while another report showed labour costs increased at a moderate pace in the first quarter.

Sterling climbed to $1.4665, its strongest since early February. It (Other OTC: ITGL - news) was last trading at $1.4650, up 0.3 percent on the day and on track for a 1.7 percent weekly gain.

"The subdued inflation reading brought another round of dollar selling. But there is some resistance for sterling around its Feb 4 high of $1.4672," said a spot trader.

On the final trading day of the April, the pound was on track for a second straight month of gains - the first time that has happened since late 2013. On a weekly basis, it was heading for its best performance since early March.

That was despite persistent concerns that a June 23 referendum will lead to a vote for Britain to leave the European Union, which most economists reckon would deal a blow to the British economy and currency.

A YouGov (LSE: YOU.L - news) poll for the Times on Thursday showed the "Out" camp edging into the lead.

"Sterling outperformance over the last week and a half or so has been driven by diminishing expectations of UK exit, and that's not driven by anything in particular in terms of polling evidence," said RBC Capital Markets head of currency strategy Adam Cole.

"The onus is really now on the polling evidence supporting what the market has done over the last week and a half, and the risk is that it doesn't."

Bookmakers' odds have consistently shown a vote for "Remain" the more likely outcome, with betting website Betfair putting the chances of a Brexit at around just 30 percent. Those odds, closely watched by investors, have lent support to the pound.

Against the euro, sterling was weaker at 78.15 pence . (Reporting by Jemima Kelly and Anirban Nag; Editing by Toby Chopra and John Stonestreet)