Sterling just above 7-1/2 month lows vs dollar

By Patrick Graham

LONDON, Dec 3 (Reuters) - More broad gains for the U.S (Other OTC: UBGXF - news) . dollar on Thursday drove sterling back towards 7-1/2 month lows, but it rallied against the euro ahead of a European Central Bank meeting expected to make another cut in rates on deposits in the single currency.

A number of major banks forecast sharp falls for sterling over the next year in their 2016 outlooks this week, Morgan Stanley predicting a fall to $1.40 in a year's time and Deutsche Bank sticking with an earlier forecast of $1.27 for 2016.

Some of that is due to concerns over a vote on Britain's membership of the European Union expected some time next year or in 2017 that has raised the temperature on debate over some of the country's macroeconomic weaknesses.

A more upbeat services sector survey on Thursday, however, underlined the main risk of betting against sterling in the short-term - that the Bank of England will follow U.S. Federal Reserve's lead and raise interest rates in the first half of next year.

"There's been some selling of both the euro and sterling over the past 24 hours but there is some support around these levels which may hold in the immediate term," said a dealer with one international bank in London.

"Its all about the ECB today."

In morning trade in Europe, the pound was just 0.1 percent weaker at $1.4935, about a third of cent above the 7-1/2 month low hit on Wednesday. It (Other OTC: ITGL - news) gained almost half a percent to 70.66 pence per euro.

Other surveys of purchasing managers in the construction and manufacturing sectors this week have come in below forecasts but all point to a continuing expansion of the UK economy.

Some said sterling had been oversold against the dollar in a 1-percent slide on Wednesday.

"We remain bearish even if the size of yesterday's move was a bit excessive," said Kit Juckes, a strategist with Societe Generale in London.

"Speculative shorts in GBP are significant but historically, positions are much less stretched than they are in Euros and any one worried that too many people are the same way round could short sterling against the dollar instead. (Editing by Andrew Heavens)