By Jessica Mortimer
LONDON, Aug 17 (Reuters) - Sterling rose against the euro and traded close to a six-week high against the Japanese yen on Friday after a string of firmer UK data this week that has suggested the economy may not be as weak as previously thought.
This week has seen above-forecast UK jobs and retail sales data, an unexpected rise in inflation that may make it trickier for the Bank of England to ease monetary policy further and BoE minutes showing an interest rate cut was not discussed.
The stronger retail sales numbers in particular, which included a significant upward revision to the previous month, raised the prospect of UK second quarter gross domestic product being upgraded from a 0.7 percent quarterly contraction.
The second estimate for second quarter GDP is due for release on Friday next week.
"This week could have been a risky week for sterling, with all the attention being back on the domestic environment. But the newsflow has been a major relief," said Audrey Childe-Freeman, head of foreign exchange strategy at BMO Capital Markets.
The euro was down 0.2 percent against the pound at 78.38 pence, bringing it close to a level of 78.13 pence hit on Thursday, its lowest in more than two weeks.
Sterling also strengthened against the yen and was last at 124.75 yen, having earlier hit 124.93 yen, matching a six-week high struck on Thursday.
BMO's Childe-Freeman said the UK economic outlook "remains poor", however, and advised being positive on sterling against the yen or the euro rather than the dollar.
The pound fell against the dollar, which firmed broadly after a stronger-than-expected U.S. consumer sentiment survey.
U.S. data has been mixed this week, but enough numbers have been strong to dim expectations for more monetary easing from the Federal Reserve, buoying the U.S. currency.
Sterling was down 0.3 percent at $1.5686 , below a 2-1/2 week high of $1.5745 reached on Thursday and looking set to end the week below chart resistance at its 200-day moving average of $1.5717.
It could also close below its 200-week average at $1.5703, which may leave it struggling to make further gains next week.
Despite recent better UK data, investors will remain wary that a fragile UK economy could temper sterling's gains.
Any rise against the euro may also be limited, with expectations the European Central Bank may take action next month to lower Spanish and Italian borrowing costs making traders reluctant to sell the shared currency too aggressively.
Those expectations got a fillip after German Chancellor Angela Merkel voiced support for the ECB's crisis-fighting strategy on Thursday.
"I expect the (UK) currency to be in a holding pattern looking ahead to the ECB meeting next month," said Sara Yates, currency strategist at Barclays.
Recent UK manufacturing and services activity data has suggested the UK economy has started the third quarter poorly after contracting for three consecutive quarters up until the end of June.
This may yet prompt the Bank of England to ease policy later this year, most likely via another bout of asset purchases, or quantitative easing. This is considered negative for the currency as it floods the system with more pounds.
(Additional reporting by Anirban Nag; Editing by Ruth Pitchford)
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