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Sterling rises versus dollar after solid UK retail sales

* Sterling rises vs dollar on CBI retail sales data

* Retail sales grow at fastest annual pace since June 2012

* BoE policymakers' cautious tone on economy still weighs on GBP

* UK final GDP data for Q2 due Thursday

LONDON, Sept 25 (Reuters) - Sterling rose against the dollar and pared losses against the euro on Wednesday after data showed British retail sales grew in September at their fastest pace since June 2012.

The Confederation of British Industry's retail sales balance unexpectedly surged to +34 from +27 in August, suggesting strong consumer demand seen over the summer was persisting. The consensus forecast was for a decline to +24.

Sterling was last up 0.3 percent at $1.6053 from around $1.6015 immediately before the data. Near-term resistance was cited at $1.6164, the eight-month peak hit on Sept 18 when the U.S. Federal Reserve unexpectedly opted to continue with its bond-buying stimulus.

Traders cited hedge funds as main buyers of sterling.

"I still think there is room for the upside in sterling as we have the improvement in the economy and markets still aren't paying too much attention to the BoE's forward guidance which would ordinarily weaken the currency," said Craig Erlam, market analyst at Alpari.

He also expected further dollar weakness with the Fed refraining from scaling back its stimulus in September.

"We have seen a bit of a technical pullback in the last few days but all things considered I don't see why we can't move to at least $1.62 in the short term and then move higher to $1.63-64."

Markets will focus on Britain's final growth data for the second quarter, on Thursday, for further evidence of a sustained recovery.

Earlier, the pound struggled after Ben Broadbent, David Miles and Paul Tucker, who all sit on the nine-member Monetary Policy Committee, emphasised this week there was no chance of an imminent rise in interest rates, despite upbeat economic data.

The market has been pricing in a rate rise much earlier than the BoE's 2016 time frame for a first increase.

"We have seen a shakeout in sterling long positions and cautious noises on the economy (from policymakers) added to that," said Simon Smith, head of research at FxPro.

Another headwind came from a fall in 10-year gilt yields to a one-month low around 2.78 percent.

The euro was up 0.1 percent at 84.20 pence.

Traders said the euro could fall against the pound in anticipation of the European Union's payment of the UK's annual farm subsidy rebate. The payment to Britain is expected to hit the currency market in the next few days, with estimates ranging from 2.5 billion-4 billion euros set to be exchanged for pounds.