UK Markets open in 4 hrs 36 mins

Dollar slide helps pound recover some poise

(Recasts after U.S. data moves dollar rates)

By Patrick Graham

LONDON, April 14 (Reuters) - Sterling recovered against the dollar but fell almost a third of a cent against the euro on Tuesday, in trade dominated by economic data that knocked back much of the U.S. currency's progress so far this month.

The dollar was down almost 1 percent against the euro and a basket of currencies. Sterling trailed with a 0.7 percent gain, reflecting some of the political concerns before next month's elections.

By 1540 GMT, it traded at $1.4774, almost two cents above 5-year lows hit a day earlier. It dipped to 72.25 pence per euro.

"The move today is down to the shift in the dollar, almost in its entirety," said Michael Sneyd, a strategist with BNP (Paris: FR0000131104 - news) Paribas in London.

He said positioning indicators run by the bank suggested both that investors had grown more downbeat on sterling before the May 7 election and that there was room for more selling. BNP's strategy team predict sterling will reach $1.43 by the time of the election.

Earlier the pound had fallen half a cent against the dollar after UK headline inflation came in at zero for the second month running, while other price indicators were marginally softer than expected.

Weak inflation is one of the main barriers standing between the Bank of England and an early rise in interest rates. Doubts about the bank's ability to move before the middle of next year have hurt the pound. <0#FSS:>

The Office for National Statistics said consumer prices rose 0.2 percent between February and March, but compared with a year earlier they were unchanged.

If the change was calculated to two decimal places, however, prices were 0.01 percent lower than a year before, which would be the first fall in consumer prices on record by that measure.

"A depressed inflation backdrop and lingering political uncertainty continue to buffer the pound's policy risk premia, making long-sterling calls unattractive," said Lena Komileva, a markets economist with G+ Economics in London. (Reporting by Patrick Graham, Marius Zaharia and Anirban Nag; Editing by Hugh Lawson, Larry King)