By Carolyn Cohn
LONDON, Nov 23 - Sterling fell to four-month lows against the dollar and four-week lows against the euro on Friday, as the market took an upcoming speech by Britain's Prime Minister as a sign of greater government commitment to the euro.
Tony Blair is to make a pro-European speech in the Midlands city of Birmingham, expected to be at 0930 GMT, telling an audience of academics that Britain's future lies in being a "wholehearted player in Europe".
Blair will say this does not mean joining the euro "come what may".
But the pound fell because markets took the opportunity to speculate on a date for a referendum on joining the single currency, particularly after a report in the tabloid "Sun" newspaper that a referendum would take place in 2005, when the next election is expected.
Analysts say sterling needs to weaken to a more acceptable level for exporters before Britain joins the single currency.
"People are looking to Blair to signal his determination to get sterling into EMU," said Jeremy Hawkins, chief European economic adviser at Bank of America.
"Markets are putting lots of weight on reports that Blair will tie the next election with a referendum and sterling weakness today is very much part of the UK euro story."
Sterling extended its losses by half a percent from the New York close to $1.4042 , according to data, its worst showing since July 18, and to 62.56 pence per euro , its worst peformance since October 26.
Sterling recovered only briefly after a spokesman for Blair's Downing Street office said no decision had been taken on a referendum. British Minister for Europe Peter Hain also attempted to cool the debate, saying it was not right for Britain to join the euro now.
Sterling has suffered wild swings on several previous occasions as markets attempted to second-guess the pro-euro Labour government's timetable for wooing the reluctant British electorate on joining the single currency.
Sterling rose to a 15-year high against the dollar just after the British election in June, on feverish market speculation on EMU entry.
"The move up in euro/sterling and move down in cable is on the back of expeactations that Blair will make a bullish speech on the euro," said a trader from a British bank.
"We've seen this before and with the momentum for the pound to go down, sterling could weaken further, even though there has been an offical government denial."