LONDON, Aug 4 (Reuters) - Sterling hit a nine-month high against a broadly weak dollar on Tuesday, extending its rally in the aftermath of strong UK manufacturing data and optimism about the health of domestic banks.
The UK currency leapt as high as $1.7005 in Asian trade, boosted after a regional rally in share prices to an 11-month high, which stoked demand for risk to the detriment of the safe-haven dollar.
"The generally weak dollar is driving the move in sterling today," said Jane Foley, research director at Forex.com in London, noting that the dollar hovered near its lowest level of the year against a currency basket.
"If we are to see a significant move higher in sterling in the near term, it will have to come from a move lower in the dollar."
Sterling was flat against the dollar at $1.6930 at 0807 GMT, pulling back from $1.7005, its highest level since mid-October. A 0.5 percent slide in UK shares .FTSE during early trade helped trim some of the pound's early gains.
The UK currency climbed more than 1.3 percent against the dollar on Monday, when a UK purchasing managers' index showed growth in the manufacturing sector.
In addition, a boost in bank shares after earnings results from HSBC and Barclays PLC the previous day also offered an upward thrust to the pound, which is often closely correlated with movements in bank shares given the significant impact of the banking sector on the wider UK economy.The pound was supported against the euro EURGBP=R, which slipped 0.2 percent to 84.97 pence and stayed near a one-month low around 84.59 pence hit on Monday. Against a currency basket, the pound =GBP was at 84.6, a shade under the 2009 high of 84.7 hit in June.
Markets are awaiting the outcome of the Bank of England's policy meeting on Thursday. With interest rates expected to remain steady, the focus is on the future of quantitative easing. [BOE/INT]
Whether the central bank will pause or expand its 125 billion pound asset-buying programme still looks to be a close call. But some analysts expect a sterling-positive outcome, at least in the short term.
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