Sterling drops below $1.55 to hit 10-day low vs dollar

(Adds gilts, updates prices)

LONDON, July 24 (Reuters) - Sterling eased against the dollar on Friday, on track for its weakest weekly performance in three, after recent data disappointed and falling oil prices raised some doubts over when the Bank of England would hike interest rates.

Sterling dropped to $1.5485, down 0.2 percent on the day, having hit $1.5469 earlier in the day -- its lowest in 10 days. It has retreated from last Friday's high of $1.5673 when it was underpinned by indications that the BoE (Shenzhen: 000725.SZ - news) was edging towards a rate rise in coming months.

Last week, Governor Mark Carney suggested rates could begin to rise around the turn of year while monetary policy committee member David Miles, once one of the strongest advocates for providing more stimulus, said in an interview published this week that the time for a hike was nearing.

"Although Carney got sterling bulls excited about the possibility of a UK rate increase at the turn of the year, I am looking at the resumed selling in oil and wondering whether the BoE's views on inflation pressures will lead to a retreat of those comments," said Jameel Ahmad, chief market analyst at FXTM.

Oil prices in the United States have slumped more than 20 percent in the past six weeks, which is likely to further ease inflationary pressures.

On Thursday, British retail sales for June disappointed, but some analysts argued it was not enough to deal a blow to hawks on the BoE policy committee, many of whom are probably inching towards voting for a rate hike next month.

Societe Generale (Paris: FR0000130809 - news) strategists said the shift in the BoE's monetary stance towards a slightly more hawkish tone would induce a wider divergence with the European Central Bank, leaving room for sterling to gain against the euro in the near term.

The euro was down 0.2 percent against the pound at 70.65 pence with the single currency knocked back by data on Friday that showed euro zone business activity was weaker than expected in July.

Markit (NasdaqGS: MRKT - news) 's euro zone Composite Flash Purchasing Managers' Index, based on surveys of thousands of companies, fell to 53.7 this month from June's four-year high of 54.2. A Reuters poll had predicted a more modest dip to 54.0.

British gilt prices rose sharply along with other high-rated government bonds, boosted by business surveys suggesting the global economy started the second half on a shaky footing.

The 10-year gilt yield fell to its lowest level since July 9 at 1.929 percent, and was last down around 8 basis points on the day at 1.94 percent. (Reporting by Anirban Nag and Andy Bruce; Editing by Hugh Lawson (Other OTC: LWSOF - news) )