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Sterling claws higher as dollar releases data-driven gains

By Amanda Cooper

LONDON, Dec 6 (Reuters) - The pound edged up on Tuesday, as investors cashed in on a rally in the dollar, while UK data showed high interest rates and a gloomy economic outlook slowed activity in the British construction industry to a crawl in November.

Sterling neared its highest in six months against the dollar early on Monday. But data later in the day that showed U.S. service-sector activity expanded by more than expected in November rekindled expectations for rapid rate rises from the Federal Reserve and triggered the largest one-day gain in the dollar in two weeks.

By Tuesday, some stability returned to the UK currency and sterling was last up 0.3% against the dollar at $1.222, while against the euro, the pound eased 0.1% to 86.09 pence.

The S&P Global/CIPS UK Construction Purchasing Managers' Index (PMI) fell to a three-month low of 50.4 from 53.2 in October, barely above the 50 dividing line between growth and contraction.

A Reuters poll of economists had pointed to a reading of 52.0.

"Survey respondents noted that new residential building projects had been curtailed in response to rising interest rates, cancelled sales and worries about the economic outlook," said Tim Moore, economics director at S&P Global, which compiles the survey.

Next week, policymakers at the Bank of England, the European Central Bank and the Fed meet to discuss interest rates, so investors are positioning carefully ahead of that.

"With no more guidance from Fed officials due to the mandatory ‘blackout’ period ahead of the next Fed meeting, forthcoming data and technical levels will take center stage as the primary drivers for GBP/USD," Warren Venketas, an analyst at DailyFX, said.

The BoE has increased interest rates from 0.1% a year ago to 3% in November, and looks likely to raise them again by another half point this month.

The pound lagged particularly against the Australian dollar after the Reserve Bank of Australia raised interest rates to a 10-year high of 3.1% and indicated it expects to continue to increase borrowing costs to bring down inflation.

Sterling was last down 0.4% against the Aussie at A$1.8124, but was only a whisker below Monday's nine-month high.

(Reporting by Amanda Cooper; Editing by Bernadette Baum)