Pound trims gains vs dollar after PMI

Sterling rose against a broadly weaker dollar on Tuesday but trimmed gains as data showed UK manufacturing activity unexpectedly slowed.

UK manufacturing purchasing managers' index fell to 51.8 in November from the previous month's downwardly revised 53.4, according to data from the Chartered Institute of Purchasing and Supply and Markit Economics. It was also below market forecasts of 54.0.

The pound slipped to around $1.6503 from a session high of $1.6542 shortly before the data's release, although it was still up 0.3 percent on the day.

"November's report on manufacturing suggests that the recovery in the industrial sector remains pretty fitful," said Vicky Redwood, economist at Capital Economics.

"It is looking like the UK economy should have pulled out of recession this quarter. But the recovery is clearly struggling to maintain momentum, suggesting that growth next year will be pretty modest."

Earlier data showed British house prices rose 0.5 percent in November, the same as in October, suggesting a rapid initial rebound from the five-year low set in February is now slowing, mortgage lender Nationwide said on Tuesday.

But the pound rose against the dollar as market concerns eased about Dubai's debt-related problems, which helped boost risk assets.

London's FTSE index rose 1.7 percent in morning trade.

From a technical standpoint, "an interim low appears to have formed in cable (sterling/dollar) at $1.6272, helped by Fibonacci retracement and the Ichimoku 'cloud'" said Nicole Elliott, technical analyst at Mizuho Corporate Bank. 

"It is not overbought and bullish momentum has increased slightly, as has implied volatility."

The euro was little changed at 91.23 pence. It had hit a one-month high of 91.54 pence on Monday after an unexpected fall in British consumer confidence data.

Against the yen, the pound rose some 1.1 percent on the day at 143.54 yen after the Bank of Japan said it would provide more liquidity in the form of 3-month fixed rate funding after holding an emergency policy meeting, while keeping interest rates steady.

The dollar pared gains against the yen, however, as market participants had anticipated more aggressive liquidity measures such as increased outright purchases of Japanese government bonds by the central bank.

Bank of England policymaker Adam Posen is scheduled to speak later in the day.