Sterling inches higher against euro after construction report

By Patrick Graham

LONDON, March 3 (Reuters) - Sterling inched into positive territory on Tuesday after a survey of construction managers came in slightly better than expected, reinforcing a generally brighter economic start to a year that also features political uncertainty.

Already robust growth in the industry jumped to a four-month high in February, the data showed, although building firms hired staff at the slowest pace in more than a year.

Sterling rose just over 0.1 percent to 72.70 pence per euro, within sight of a seven-year low of 72.35 struck on Monday. Against the dollar, it was unchanged at $1.5368.

"Sentiment for the pound is positive this year," said Jake Trask, a corporate dealer with broker and currency payment company UKForex in London.

"However, the uncertainty over the result of the General Election is causing a headwind for the construction sector, leading to some building companies delaying spending decisions."

Sterling has been the strongest performer of the G10 group of developed world currencies over the past month, fuelled by a revival of expectations for a rise in interest rates within the next year.

But it also faces the prospect of a poll in May that, highly unusual in British politics, could see half a dozen different parties have an influence on the shape of the next government.

Markets on balance seem most concerned by the prospect of heavier spending and taxes and regulation of the financial sector under a centre-left Labour government.

A number of analysts have argued that such a government, or a rightist one that leans towards withdrawing Britain from the European Union, could spur market concerns over Britain's huge current account deficit and public debt.

"Though sterling has benefited from cyclical tailwinds, it still has to contend with the structural headwinds in the form of a sizeable current account deficit," said Kamal Sharma,

"The reliance upon capital flows to finance the burgeoning deficit is likely to come into stark focus in and around the General Election and supports our case for a reversal in recent action."

Gilt futures dipped slightly and the 10-year gilt yield's advantage over Bunds , also at the heart of sterling's improved performance, widened a touch. (Editing by Jeremy Gaunt)