LONDON, July 19 (Reuters) - Sterling held steady versus the dollar near 26-year highs on Thursday, supported by expectations of at least one more rate rise from the Bank of England.

Investors are looking to June retail sales data at 0830 GMT for more clues as to the state of the UK economy and how far further rate rises are merited.

Retail sales are expected to increase 0.3 percent on the month and 3.5 percent for the year (ECONGB: Quote, Profile, Research), according to Reuters data, slowing slightly from May's performance.

A Reuters poll released on Wednesday showed 30 out of 55 economists see UK interest rates rising to 6 percent this year but only three of them expect the move to come in August.

"It's a case of when, not if rates will be raised," said Geoff Kendrick, currency strategist at Westpac.

He said this is continuing to make the pound an attractive destination for the carry trade where investors borrow in low yielding currencies such as the yen to buy higher yielding assets.

At 0722 GMT the pound was steady on the day at $2.0532, just below a 26-year high set the previous session. It was also steady versus the euro at 67.21 pence <EURGBP=>.

Bank of England Governor Mervyn King said he expects inflation to come down during the rest of the year in an interview with the Western Morning News regional newspaper, published on Thursday.

Data released earlier this week showed UK CPI inflation easing to 2.4 percent year-on-year, but still above the BoE's 2 percent target, while core consumer price growth hit a decade high.

"The UK economy is fundamentally strong and the dollar is soft as subprime (U.S. high-risk mortgage) worries continue to have an impact, so cable should continue to be well-bid," said Westpac's Kendrick.

 Source supplied by: Reuters

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