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Pound clings to $1.40 on bullish British bets

FILE PHOTO: Wads of British Pound Sterling banknotes are stacked in piles at the Money Service Austria company's headquarters in Vienna

LONDON (Reuters) -The British pound held close to recent highs on Thursday, withstanding a wider sell-off that has knocked risk currencies.

Sterling had risen above $1.41 for the first time since February on Monday, helped by dollar weakness, market relief over Scottish election results, lockdown easings and the Bank of England raising its economic growth forecast.

Better-than-expected British GDP numbers on Wednesday also supported the pound, although a dollar rise after better-than-forecast U.S. inflation data sapped some of its recent rally.

On Thursday, the pound fell 0.2% to $1.4028. The drop was modest given sharp falls in global stock markets and a deterioration in general investor sentiment.

Against the euro, sterling weakened 0.1% to 86.035 pence.

Analysts say a combination of a stronger UK economic rebound than expected and the belief that any Scottish independence vote is a long way off make the pound relatively attractive.

"The better than expected March UK GDP yesterday underscored the bright outlook for the pound and the expected solid UK data this quarter should further support the currency," ING analysts said in a research note.

"We expect EUR/GBP to re-test the 85 [pence] level in the coming weeks. After the latest dip in GBP speculative positioning, sterling longs should start increasing yet again."

CFTC positioning data showed that speculators reduced their net long position on the pound in the week to May 4..

Sterling is the second best-performing G10 currency in 2021, helped by bets that Britain's rapid vaccination drive will lead to a quicker economic rebound.

The currency has also benefited from the Bank of England beginning to taper its bond purchasing programme, on the back of the improving economic outlook.

Bank of England policymaker Jonathan Haskel said on Wednesday he was not too concerned about the medium-term inflation outlook in Britain, but would watch out for damage to the country's productive capacity.

British house price inflation hit its highest level since the late 1980s in April as buyers raced to take advantage of an extended tax break just as sellers retreated, a survey showed this week.

(Reporting by Ritvik Carvalho and Tommy WilkesEditing by Gareth Jones, Barbara Lewis and Alexander Smith)