Sterling held above last week's 11-year lows on a trade weighted basis on Tuesday, as rallying stock markets boosted risk appetite among investors returning from a four-day Easter weekend.

With the highest interest rates among the Group of Seven (G7) countries, coupled with hefty deficits and a financial sector which plays a significant role in the economy, sterling tends to trade in line with ebbs and flows in risk appetite.

European equities surged 3 percent in early trade, reversing last week's losses and cheered by a surprise rise in February U.S. existing home sales on Monday and news that JP Morgan had raised its offer for stricken rival Bear Stearns by around five times, to $10 a share.

The more upbeat market mood on Tuesday enabled the pound to move higher versus the dollar and the yen, although it failed to make progress versus a broadly resurgent euro. "The news continues to be consistent with improving risk appetite -- we've had the increase in the JP Morgan bid for Bear Stearns and the (U.S.) existing home sales. That's helping sterling," said Mitul Kotecha, head of global foreign exchange research at Calyon. By 0830 GMT, sterling was up a third of a percent at $1.9930 <GBP=>. It also edged up versus the yen, to 200.53 yen and opened at 93.80 on a trade-weighted basis -- above 11-year troughs of 93.10 hit last week.

However the euro rose half a percent to 78.05 pence -- edging back towards a record peak of 79.12.

"Sterling might make a bit of headway against the dollar this week, moving back above $2, but I think there is still the concerns about the UK financial sector, the economy and the housing market so it's difficult for it to make much progress against the euro," Kotecha said.

The Confederation of British Industry on Tuesday cut its 2008 UK growth view to 1.8 percent from 2.0 percent, and forecast a further slowdown to 1.7 percent in 2009, saying global credit turmoil will hurt economic growth well into next year.

No first tier UK data is due on Tuesday.

Sourced by Reuters.