Sterling falls broadly on weak shares, BoE policy

* Sterling falls 1 pct vs dollar GBP=D4, 2.3 pct vs yen

* Euro above 90 pence EURGBP=R for 1st time in 12 days

* UK shares fall 1 pct, denting risk appetite and sterling

* BoE extension of QE plan continues to weigh on the pound

By Jessica Mortimer

LONDON, May 11 (Reuters) - Sterling fell sharply across the board on Monday, mirroring declines in equities and other currencies perceived as higher risk as investors took profit after last week’s strong rally in risky assets.

Last week’s unexpected Bank of England decision to expand its quantitative easing programme by 50 billion pounds also continued to dent the currency as investors anticipated a dovish quarterly Inflation Report from the central bank on Wednesday.

This kept sterling under pressure against the euro -- which rose above 90 pence for the first time in 12 days -- in addition to sharp falls against the dollar and the yen, the currencies which typically gain in a risk averse market.

As well as the BoE’s latest forecasts for growth and inflation on Wednesday, investors were also cautious ahead of UK industrial production data scheduled for release on Tuesday and unemployment figures on Wednesday, with both forecast to be weak.

“People have taken the BoE’s decision to expand its quantitative easing programme as a sterling negative,” Bank of Scotland Treasury currency strategist Naeem Wahid said.

He added that the falls against the dollar and the yen were mainly the result of a broad correction in risky assets, though demand for risk may start to pick up again later in the week.

“There was a dollar sell-off late Friday which caused a bit of a run-up in cable (sterling/dollar) and today there’s been a relaxation of that dollar negative environment because it’s a new week with no new drivers,”

At 1408 GMT, sterling had fallen 1 percent against the dollar to $1.5098 GBP=D4, just above a session low of $1.5080. The UK currency had earlier hit a four-month high two cents above that low at $1.5280.

Sterling also tumbled 2.3 percent against the yen to a 10-day low of 146.76 yen GBPJPY=R as UK shares traded down around 1 percent .FTSE.


The euro gained 0.8 percent against the pound to a 12-day high of 90.09 pence EURGBP=R

The euro has been gaining against sterling since the BoE and European Central Bank monetary policy decisions on Thursday. Though both contained an element of surprise, investors concluded that the BoE’s move was the more dovish of the two.

The ECB last week cut interest rates by a quarter percentage point to 1.00 percent, but this still left euro zone interest rates above UK rates at 0.5 percent. It also announced plans to boost credit through the purchase of covered bonds.

“Sterling remains undermined by last week’s decision by the Bank of England to extend its quantitative easing activities significantly, by 50 billion pounds,” AIB Group Treasury economist Geraldine Concagh said.

“At the same time the ECB’s actions seemed quite minimal in comparison, which has helped euro/sterling move higher.”

Political concerns further dented sterling sentiment as a British newspaper on Sunday reported a slump in support for Prime Minister Gordon Brown’s Labour Party amid revelations over parliamentarians’ expenses. [ID:nLA339779].

“All this bad publicity on the political scene is a further dent to confidence for investors,” a London-based trader said.