LONDON, Aug 16 (Reuters) - Sterling rose to its highest in more than two weeks against the dollar on Thursday after UK retail sales unexpectedly grew in July, raising the prospect that the economy may not be as weak as previously thought.
The British pound was also bolstered after the dollar lost ground following the release of soft U.S. data.
Sterling rose to $1.5739, its highest level since late July after a rise in U.S. jobless claims and sluggish housing data. It had jumped above $1.57 from around $1.5668 before the UK data was released with near-term resistance at its 100-day moving average of $1.5755.
Before the UK data was released, the pound had been helped by reported buying by an Asian central bank.
UK retail sales rose 0.3 percent in July on the month, confounding forecasts for a fall of 0.1 percent, while sales for the previous month were revised higher.
"The data of late - retail sales and unemployment - has been impressive, despite concerns about growth and at the margins this is helping sterling," said Chris Walker, currency strategist at UBS.
Sterling had risen on Wednesday after better-than-expected UK employment figures and as Bank of England minutes showed a unanimous vote not to increase asset purchases and no discussion on cutting interest rates.
The pound's bounce helped the trade-weighted sterling index
rise to 84.40, its highest since July 31, data from the Bank of England showed.
Despite sterling's recent rise, investors are wary of buying it in a big way given recent manufacturing and services sector data, which has suggested the UK economy remains mired in recession after contracting for three consecutive quarters up until the end of June.
This may prompt the BoE to ease policy later this year.
Against the euro, sterling was steady, paring some of its earlier gains. The common currency fell to 78.13 pence, its lowest in more than two weeks after the UK retail sales data, before recovering to trade at 78.40, barely changed on the day.
Analysts said the pound could gain a bit more against the euro as sterling deposits offer better returns than their euro zone counterparts. Three-month euro deposit rates are at 0.36 percent, nearly half the level of sterling rates.
The ECB is expected to cut interest rates in the coming months as the euro zone economy heads towards recession and fiscal austerity measures undermine output.
"The reason behind the pound's better tone against the euro is in part because even the UK's poor economic position looks attractive when the euro's political woes are considered," Rabobank said in a note.
(Reporting by Anirban Nag; Editing by Ruth Pitchford and Susan Fenton)
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