LONDON, Feb 11 - Sterling steamed ahead to a two-week high against the dollar on Monday as another loss on Wall Street dented the greenback across the board.
U.S. stocks have been under pressure since last week on persistent concern about accounting practises in corporate America.
"Negative sentiment for the dollar is still there and there are additional worries that such jitters on accounting practises could impact the corporate bond market, which is negative for the dollar," said Shahab Jalinoos, currency strategist at UBS Warburg.
"But I think this (the broad-based dollar weakness) is a short-term phenomenon, just until the end of the month."
By 1510 GMT sterling stood at $1.4227 after scoring its biggest one-day gain since December by hitting a two-week high of $1.4248 earlier in the session. Against the euro the pound erased its early gains to stand steady on the day at 61.69 pence.
Dealers said relatively heavy buying by European banks hit thin trading conditions, triggering a series of stop-loss buying orders from $1.4180 to $1.4220.
"People are offloading their dollar longs but I don't think they are confident to sell dollars quite aggressively from here," a European bank dealer said. "So I don't think cable can rally above $1.4350."
Sterling showed little immediate reaction to data showing UK producer prices rose 0.1 percent on the month in January to stand 0.5 percent lower than a year ago.
Markets are now focused on Retail Price Index due on Tuesday ahead of quarterly inflation report by the Bank of England on Wednesday.
Economists polled by expect RPIX inflation, which excludes the cost of mortgage payments, to rise to 2.2 percent year on year in January from 1.9 percent in December.
Analysts said stronger than expected inflation from buoyant consumer demand would further fan expectations Britain would be the first major country to raise interest rates this year. Short sterling futures are already pricing in the chance of at least a 50 basis point rate hike by September.
"The market will continue to like sterling because the market rewards higher real rates provided the strength of the economy is not inflationary."