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Sterling hits 8-month low vs euro as consumer prices fall

(Adds quote on trade, exchange rate)

By Jemima Kelly and Patrick Graham

LONDON, Oct (HKSE: 3366-OL.HK - news) 13 (Reuters) - A surprise fall in British consumer prices in September drove sterling to its weakest in eight months against the euro on Tuesday, overturning any positive fallout for the pound from the confirmation of a major merger.

The pound had touched a three-week high against the dollar in early trade in Europe on the back of SABMiller (Xetra: BRW1.DE - news) 's acceptance of a cash and share offer from Anheuser-Busch InBev, the world's largest brewer, worth 69 billion pounds.

But that all turned as data showed British inflation dipped back below zero last month, missing forecasts for a flat reading. Those numbers will be followed on Wednesday by British earnings data, which the Bank of England also watches closely as it considers when to raise interest rates.

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"We obviously need to see what the labour market has to tell us tomorrow but (the inflation data) makes the case that we're nowhere near raising rates any time soon," said Barclays (Swiss: BARC.SW - news) currency strategist Nikolaos Sgouropoulos.

The pound fell sharply just before the inflation numbers came out and continued to weaken afterwards, amid trader speculation that the numbers had been released early. The euro climbed as much as 1.1 percent on the day to trade at 74.93 pence, its strongest since early February.

Against the dollar, the pound fell 0.7 percent on the day to $1.5206, having earlier hit $1.5388.

The first parliamentary appearance by new Bank of England policymaker Gertjan Vlieghe also weighed on sterling. He said the next move in interest rates would probably be a rise, but pointed to a number of headwinds for growth both globally and domestically.

A number of other players in the market, however, emphasised the likely positive impact of the SABMiller deal. Citi strategist Josh O'Byrne said he remained positive on the pound.

"Generally on sterling we're still quite optimistic," he said. "Clearly there's been some softening in demand. But the BoE (Shenzhen: 200725.SZ - news) continues to make the right sounds, that there is still tightening in prospect so that bodes well." (Additional reporting by Jemima Kelly and Ana Nicolaci da Costa; Editing by Alison Williams)