Sterling firm near 8-week high against dollar, UK data supports

LONDON, Feb 26 (Reuters) - Sterling traded firm near an eight-week high against the dollar on Thursday, drawing support from steady economic growth in Britain, although a drop in business investment was likely to make some investors cautious.

Data released on Thursday showed firms' investments fell at their sharpest rate in nearly six years in the last quarter of 2014, hit by lower investment in the petroleum sector as global oil prices fell.

British gross domestic product between October and December grew by a quarterly 0.5 percent, slowing from 0.7 percent in the third quarter. That was the slowest quarterly growth rate in a year, but was broadly in line with expectations, and much better than the euro zone.

Sterling was a tad higher, trading at $1.5535, having hit a eight-week high of $1.5554 in Asia. The euro was also steady at 73.19 pence, not far from a 7-year low of 73.05 pence struck early in London trading.

"Sterling/dollar traded higher as UK growth remains at elevated levels," said Alejandro Zambrano, currency strategist at FXCM (NYSE: FXCM - news) . He added recent soft economic data out of the U.S. was also prompting a pull back in the dollar.

Sterling's gains also come after a steadying of expectations for the Bank of England to deliver an interest rate hike early in 2016, after those were pushed back by more than a year.

Earlier this week policy committee member Kristin Forbes had the most impact in a raft of comments from BoE policymakers, prodding the pound higher by saying rates could rise soon if inflationary pressures pick up quickly.

Recent data on the UK economy, in particular wage growth, has been solid although inflation remains close to zero. Sentiment has also been bolstered after the FTSE 100 index hit a record, surpassing a previous lifetime high set in December 1999.

"Coupled with the FTSE 100 recording a new record high this week, the UK economy appears to be recovering at just the right time for the government," said Dennis de Jong, managing director at UFK.com after the growth data was released. Britain will hold a general election in May.

"Although an inevitable interest rate (hike) is on the horizon, central banks around the world are trying in vain to stem the tide of deflation and the threat of Eurozone debt isn't going away anytime soon."