Sterling gained some ground versus the dollar and held above the previous day's two-week low against the euro on Thursday after data showed British retail sales rebounded in January. Some analysts said investors took advantage of the better than expected figures to buy back sterling sold in the wake of Wednesday's inflation report from the Bank of England. The market had focused on dovish comments in the BoE's report, in which the bank said growth and inflation risks were somewhat to the downside, in part because of an uncertain consumer outlook.

"Retail sales did seem to help sterling a bit," said Tom Vosa, market economist at National Australia Bank in London.

"Overall the data was in line and people were looking for an excuse to buy sterling."

At 1530 GMT sterling traded 0.28 percent up on the day at $1.8893. It was also at 69.05 pence per euro, steady on the day and compared with Wednesday's two-week low of 69.29 pence.

UK retail sales rose 0.9 percent in January after a 1.1 percent monthly fall in December, initially reported as a 1.0 percent decline.

Sales rose at their sharpest pace in four months after a poor Christmas encouraged stores to slash prices to attract customers.

However, the data was unlikely to settle the debate over whether the next move in UK interest rates will be up or down as policymakers have pointed out that Christmas and New Year figures can be very volatile.

British interest rates have stayed at 4.75 percent since August after five rate hikes.

Copyright Reuters, 2005