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Sterling falls on UK political worries; BoE eyed

* Sterling hits 1-week low of $1.5912 GBP=D4, 90.26 pence

* Attempt to unseat PM Brown fails but leader seen weakened

* Eyes on BoE; no change to rates or QE expected

LONDON, Jan 7 (Reuters) - Sterling hit one-week lows against the dollar and euro on Thursday, as the pound remained weighed down by political uncertainty even as Prime Minister Gordon Brown fought off an attempt within his party to unseat him.

A former British cabinet minister who called for a secret ballot on Brown’s future admitted that his surprise move had failed, but newspapers said the plot had still weakened the Labour leader. [ID:nLDE60600D]

“The net result is that the recovery in Labour’s support will have taken a knock,” said Mitul Kotecha, global head of FX strategy at Calyon in Hong Kong. “This adds to a list of concerns including fiscal issues, and fears of a sovereign ratings downgrade.”

Traders awaited the Bank of England’s policy decision at 1200 GMT. Most market players expected any impact to be minimal as no change in neither interest rates nor the quantitative easing target was expected at this time.

The BoE’s Monetary Policy Committee voted unanimously in December to leave interest rates at 0.5 percent and to keep its target for asset purchases at 200 billion pounds.

Any serious discussion to review the asset buying scheme was expected in February when the current purchases were completed and the central bank would have its latest economic and price outlook.

“The minutes to the December meeting show that the policy committee is unanimous on keeping current targets. However, the asset purchase target remains an open-ended commitment as credit figures are still too weak for the BoE’s liking,” analysts at UBS said in a research note.

At 0901 GMT, sterling was down 0.6 percent on the day at $1.5930 GBP=D4, after hitting a one-week low of $1.5912. Support was seen at the Dec. 30 low of $1.5832 while key resistance was seen around the 200-day moving average of $1.6105/10, traders said.

The euro was 0.3 percent higher at 90.19 pence after rising to 90.26 pence, its highest since late December last year.

Meanwhile, sterling plunged to 25-year lows against the Australian dollar as a surprisingly strong Australian retail sales report bolstered the case for a February rate rise.

Contrasting economic fundamentals and yields have been favouring the Aussie dollar against the pound, traders said.

The pound fell to around A$1.7309 GBPAUD=R, a level not seen since 1985. (Reporting by Tamawa Desai; Editing by Andy Bruce)

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