LONDON, Oct 8 (Reuters) - Sterling hit a three-week high versus the euro on Tuesday, cheered by a survey showing that UK retail sales growth picked up to a three-month high in September.

However the pound failed to make progress against a broadly strong dollar which is still reaping the benefits of Friday's better than expected jobs data which quelled fears of a recession in the world's biggest economy.

In Britain any positive data -- such as the September British Retail Consortium survey released overnight -- is seen as reducing the chances of a near-term interest rate cut.

But overall, most analysts are still convinced that rates have peaked and the longer term outlook for sterling remains negative, with its yield advantage eventually set to erode.


"The retail sales numbers were a bit better than expected ... For now it supports the view that the Bank of England aren't going to cut rates before the end of the year," said Daragh Maher, senior currency strategist at Calyon.

"But I still think there is a degree of nervousness over the consumers in the UK," he added.

The euro fell to a three-week low of 68.94 pence <EURGBP=> before edging back up to 69.03 pence by 0714 GMT.

The pound eased 0.2 percent to $2.0326 <GBP=>. On the Bank of England's trade-weighted basis it opened at 102.9 <=GBP>, a touch below the previous day's three-week highs.

Britain's National Institute of Economic and Social Research (NIESR) on Tuesday estimated that the UK economy grew 0.7 percent in the third quarter, down from 0.8 percent in the second quarter.

The think tank said this was likely to presage a further slowdown in growth into next year, but added that the BoE would probably want more proof of such a trend before cutting rates.

Tuesday sees the unveiling of British government's pre-budget report, which is expected to point to a pick up in borrowing next year and may feature cuts in taxes on home buying and inherited wealth.

Source supplied by: Reuters