Sterling steady ahead of central bank meetings

By Patrick Graham

LONDON, March 5 (Reuters) - Sterling was broadly steady early on Thursday, caught between n pre-election concerns and an improving economy.

The Bank of England publishes its March policy decisions at 1200 GMT and is expected to add nothing immediately to the debate over the timing of a interest rate rise, now seen likely early next year.

The pound has made steady progress against the euro in the past week, hitting 7-year highs on the back of a new push by the dollar against the euro.

But, like most major currencies, sterling is also weaker against the greenback and there are expectations that uncertainty about elections in May will weigh increasingly on sentiment towards British assets.

"The euro-dollar fall is dragging the pound down against the dollar and the euro can't fall too fast from here," said Kit Juckes, a strategist with Societe Generale (Paris: FR0000130809 - news) in London.

"I like short sterling/Swedish crown for a long-term trade as a result, as euro has much more downside against the crown than the pound."

By 0906, sterling to was 0.1 percent down on the day at $1.5251, up from a three-week low of $1.5225 hit as Europe came on line. It was 0.2 percent stronger against the euro at 72.43 pence per euro, compared to a 7-year high of 72.37 struck on Wednesday.

Data on Wednesday showed growth in Britain's services sector eased in February lagging the United States although sentiment surveys point in general to robust expansion.

That has brought forward expectations for when interest will rise and made sterling among the strongest performing G10 developed world currencies over the past month.

Investors, however, are concerned by the prospect of heavier spending and taxes and more regulation of the financial sector if a centre-left Labour government is elected in the poll in May, currently too close to call.

They also worry that Britain could leave the European Union if the ruling Conservatives win. Under pressure from the anti-EU UK Independence Party, the Conservatives have promised a referendum on EU membership within two years.

"The market is definitely in two minds on sterling at the moment," said a senior manager at one London hedge fund.

"The City is very nervous about a Labour government, but I think people may be missing the point. If we get more leftist administrations across Europe in the next year to two years, they will spend more and we will get a boost for growth." (Editing by Jeremy Gaunt)