The pound extended gains versus the euro and short sterling futures erased gains on Thursday after UK retail sales data came in stronger than expected.

The Office of National Statistics said sales grew 1 percent last month, putting them up 5.5 percent on the year, well above analysts' forecasts of a decline of 0.2 percent on the month and 3.6 percent rise annually.

The data cast doubt over how quickly and deeply the Bank of England will cut interest rates.

"The retail sales are surprisingly strong," said David Tinsley, economist at nabCapital. "In terms of immediate interest rate expectations data like this throws some uncertainty around that (an April rate cut)."

By 0945 GMT the pound was trading at $1.9783 from around $1.9754 before the data.

The euro was at 78.27 pence from 78.64 pence before the data.

UK rates futures erased all their gains and Gilts futures pared gains.

Short sterling contracts were flat across the 2008 strip, having traded up as much as 5 ticks before the data, while the June Gilt future was up only 6 ticks on the day at 111.74 FLGM8 compared with 111.90.

Two-year government bond yields popped up to 3.71 percent from 3.685 percent, and 10-year yields rose a couple of basis points to 4.29 percent.

Euro zone government bond futures pared gains to hit session lows after the data.

Traders said that the thin trading conditions ahead of long Easter weekend meant that the UK data was having an effect.

June Bund futures FGBLM8 were last 5 ticks higher at 117.61, having hit an earlier high of 117.90.

Sourced by Reuters.