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Sterling pares dollar gains after slacker than forecast survey

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LONDON, Dec 1 (Reuters) - Sterling traded briefly back above $1.51 on Tuesday, helped to its highest in almost a week by a weaker tone for the dollar before the mood was dampened by a slightly weaker than expected survey of manufacturing sector purchasing managers.

The PMI (Other OTC: PMIR - news) survey showed manufacturing growth above lacklustre rates seen earlier in the year as export orders overall picked up, but it slowed last month from the rapid pace recorded in October, weakening the pound slightly.

Sterling, up almost 0.4 percent at $1.5101 before the data, fell back to as low as $1.5083, still up 0.2 percent on the day. It (Other OTC: ITGL - news) was roughly flat against the euro at 70.22 pence.

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A number of major banks are calling for a substantial weakening of the pound over the next year, given risks to growth and investment from tighter fiscal policy and the prelude to a vote on whether Britain should leave the European Union.

Morgan Stanley (Xetra: 885836 - news) 's 2016 global outlook on Monday predicted sterling would fall to $1.40 in a year's time.

"There seems to be some support for sterling around the $1.50 mark," said John Hardy head of FX strategy at Saxo Bank of Tuesday's moves. He said the data served only to underline a growing divergence in the outlook for UK and U.S (Other OTC: UBGXF - news) . growth and monetary policy.

"UK/US rate spreads are pointing to dollar gains and the Fed rate hike cycle is a much more of a danger than the BoE rate cycle. For the BoE, the exchange rate is also a much larger concern."

Investors are currently betting that the BoE will not start to raise rates until late 2016. In contrast, they expect the U.S. Federal Reserve to lift rates from their record lows later this month.

The week's central event for the market is Thursday's meeting of the European Central Bank, widely expected to ease policy further and Citi analysts said they expected sterling to strengthen against the euro going into the meeting.

"That's the prevalent view in the market," said a dealer with one London-based brokerage. "But there are enough nerves out there to keep people wondering whether all of these short euro positions won't get a bit squeezed. That should keep things fairly balanced until Thursday." (Reporting by Patrick Graham and Anirban Nag; Editing by Keith Weir)