UPDATE 3-Egypt keeps pound steady at dollar sale despite devaluation talk

(Adds official announcement)

CAIRO, Oct 4 (Reuters) - Egypt’s central bank kept the Egyptian pound steady against the dollar at Tuesday’s weekly auction of foreign currency, confounding expectations of a devaluation that had helped fuel a stock market surge.

The central bank said it sold $117.9 million at the weekly sale, with the cut off price stable at the official rate of 8.78 pounds per dollar.

Speculation is rife that the bank could devalue the pound any day to close the gap with the black market rate, which two traders said had weakened to unprecedented levels of 14.20-14.25 to the dollar on Tuesday. They did not give volumes.

Those expectations were compounded on Monday by news that the country’s net foreign reserves jumped to $19.59 billion at the end of September, their highest in over a year. The central bank governor has said he would consider letting the pound float freely if reserves exceed $25 billion.

It currently keeps the currency in a tight trading band against the dollar.

Egypt had roughly $36 billion in reserves before a 2011 uprising that ushered in a period of turmoil, scaring off tourists and foreign investors, key sources of hard currency.

The acute hard currency shortage has hit business and discouraged investment in the past two years as companies struggle to pay for imports and repatriate profit.

The central bank has not explained the rise in reserves, but Egypt last month received the first $1 billion tranche of a $3 billion World Bank loan aimed at supporting the government’s reform programme.

The United Arab Emirates also agreed in August to give Egypt’s central bank a $1 billion deposit for six years, while the government had been in talks with Saudi Arabia to secure a new deposit worth $2 billion-$3 billion. It is also in talks with China.

Devaluation fever had soared in recent days, with the finance minister and other officials in Washington to make a final push to seal a $12 billion three-year lending facility deal with the International Monetary Fund. (Reporting by Ehab Farouk, Lin Noueihed and Ola Noureldin; Editing by Eric Knecht and Hugh Lawson)