FOREX-Dollar falls to 26-year low vs sterling

TOKYO, July 18 (Reuters) - The dollar slid to a 26-year low against sterling on Wednesday due to worries about the U.S. subprime mortgage sector and after British inflation data boosted expectations for higher interest rates there.

Sterling rose as high as $2.0492 GBP=D4, getting a boost after data on Tuesday showed that the annual core consumer price index in Britain rose to a decade-high 2.0 percent in June.

The data bolstered expectations that interest rates in Britain -- already the highest among Group of Seven industrialised nations at 5.75 percent -- could climb beyond 6 percent by the end of the year.

“It might be more or less factored in, but it looks like interest rates are headed higher in Europe,” said a trader for a major Japanese trading house.

By contrast, the dollar seems to be on shaky ground due to lingering concerns that troubles in the U.S. subprime mortgage sector might have an adverse impact on the broader economy, the trader said.

Such worries came to the fore again after Bear Stearns Cos. Inc. BSC.N said in a letter to investors on Tuesday that two of its hedge funds that bet heavily on risky subprime loans now have "very little value". [ID:nN17260293]

Sterling stood at $2.0487 GBP=D4 as of 0004 GMT, up from around $2.0470 in late U.S. trading on Tuesday. Sterling was also on solid footing against the low-yielding Japanese currency and stood at 250.03 yen GBPJPY=R, hovering near a 16-year high of 250.49 yen hit on Tuesday.

The dollar slipped to 122.05 yen JPY= compared to around 122.20 yen in late U.S. trading on Tuesday, while the euro inched up to $1.3793 EUR=, edging back toward a record high of $1.3815 hit on electronic trading platform EBS last week.

Later this session, investors’ focus will turn to U.S. Federal Reserve Chairman Ben Bernanke’s semi-annual testimony before Congress as well as U.S. consumer price data.