Sterling slips towards 2014 lows versus buoyant euro

LONDON, March 17 (Reuters) - Sterling fell towards 2014 lows against a buoyant euro on Monday, with the single currency bolstered by news of an European acquisition by Vodafone and expectations that the ECB will not ease policy anytime soon.

After a bullish run since the middle of last year, more doubts have emerged about the pound this month, with many analysts saying the improvement in the UK economy and the prospect of an interest rate rise next year are well priced-in.

That is making it harder for the currency to gain more on the back of even relatively robust numbers like the 3-5 percent annual rises in construction and industrial output shown by official data last week.

Another factor in the pound's rise has been Vodafone's sale of its main U.S. business for $130 billion, inflows from which are now largely seen as complete. The company confirmed on Monday it will use some of the resulting spare cash to buy Spain's ONO for 7.2 billion euros ($10 billion).

The euro was up 0.15 at 83.77 pence, not far from its 2014 high of 83.81 pence struck on Friday. The euro has been gaining ground despite a downward revision in February inflation as more investors expect the European Central Bank to keep policy unchanged unless there is a sharp drop in price pressures.

On the other hand, investors are likely to stay clear of the pound in the run up to this week's federal budget and jobs data.

"Tighter fiscal policy should be putting pressure on the BoE (Shenzhen: 000725.SZ - news) to maintain loose monetary policy. That should be a negative for the pound," said Nawaz Ali, market analyst at Western Union.

Danske Bank (Other OTC: DNSKF - news) said there were strong indications of a long-term turnaround for the euro towards 88 pence, recommending clients place bets on a stronger common currency.

Sterling was a touch higher at $1.6662, having lost ground for two straight weeks.

"Sterling is still strong but we have seen a double top forming and we seem to be very much stuck in a holding pattern now, looking for a new direction," said Kathleen Brooks, head of research with Forex.com.

That direction could come from data on Wednesday.

UK unemployment and wage numbers may shine as much new light on the outlook for monetary policy as Bank of England minutes, expected to show the bank still in wait-and-see mode on the strength of Britain's economic upturn.

The jobs numbers are expected to show another 25,000 dip in the number of people out of work, while wages are expected to have risen 1.2 percent year-on-year - improving, but still well below inflation.

"The key theatre for policy is expected to be the labour market," said Paul Robson, strategist with RBS (LSE: RBS.L - news) in London.

"The labour market report is widely expected to see a tick down in the unemployment rate and tick up in wage growth. This sets the bar a little higher for a possible positive sterling reaction this week."

British government bond prices edged lower, broadly in line with Bunds, after three days of strong gains had taken them to an 11-day high on Friday.

Ten-year gilt yields were just over 1 basis point higher on the day at 2.68 percent, well off Friday's 11-day low of 2.642 percent. Their spread over Bund yields widened fractionally on the day to 113 basis points. The spread touched its lowest in around a week at 110 bps on Friday.