* Barclays profit forecast boosts sterling
* Euro rises with stocks, dollar up vs yen
* Euro, pound still pressured by bank sector concerns
* Sentiment remains fragile amid global growth concerns
(Updates prices, adds comment, changes dateline, byline)
By Steven C. Johnson
NEW YORK, Jan 26 (Reuters) - Sterling and the euro rose
against the dollar on Monday, rebounding from last week's
losses as European stock prices rose and British bank Barclays
said it would report a pretax profit for 2008.
The slightly sunnier mood also lifted commodity currencies
such as the Canadian dollar <CAD=> and nudged the U.S. dollar
higher against the yen ahead of a Federal Reserve
policy-setting meeting later this week.
But the British pound was still not far from a 23-year low
against the greenback, and worries about the banking sector and
the global economy kept investors cautious.
"The Barclays news was the first good news from the UK
financial sector in a while and boosted the idea that maybe the
UK is stepping back from the brink," said David Watt, senior
currency strategist at RBC Capital Markets in Toronto.
"But sentiment is still quite shaky, and at the first sign
of bad news, people are prepared to run for the hills again."
European shares were more than 1 percent on Monday, boosted
by Dutch financial group ING <ING.AS>, which said it would tap
into government guarantees, and Barclays <BARC.L>, which said
it would not need new funding.
Early in New York, the dollar was up 0.3 percent at 89.09
yen <JPY=> while the euro rose 0.8 percent to 116.30 yen
<EURJPY=>, well off a multiyear low near 112 yen last week.
The euro also changed hands at $1.3112 <EUR=>, up 0.9
percent, while sterling rose 0.7 percent to $1.3902 <GBP=>.
Last week, it hit a 23-year low at $1.3502.
Earlier, sterling was pressured after Bank of England
Monetary Policy Committee member David Blanchflower was quoted
on Sunday as saying British interest rates still had a way to
go if they were to follow the United States [].
Key US rates are now targeted in a range of zero to 0.25
percent. British rates are at 1.5 percent.
"The prospect of lower UK rates is one of the key drivers
helping to undermine the pound," said Lee Hardman, currency
economist at Bank of Tokyo-Mitsubishi UFJ.
The European Central Bank, on the other hand, seems less
eager to take rates to zero. Yves Mersch, an ECB governing
council member, told the Financial Times in an interview
published Monday that he did not want to see interest rates
fall much below the current 2 percent [].
But BNP Paribas currency strategist Ian Stannard said the
euro may come under more pressure if policymakers are slow to
react to a worsening global slump.
An International Monetary Fund official warned over the
weekend that the fund would cut its 2009 growth forecast again,
likely to between 1 and 1.5 percent [].
"The market has yet to adjust to a more severe slowdown in
the euro zone," he said, adding widening credit spreads in the
euro zone would also hamper the single currency.
The Fed begins a two-day policy meeting on Tuesday, and
with rates already near zero, traders will watch the central
bank's policy statement from the meeting for pointers on what
assets the Fed may purchase to ease credit strains, analysts
said.
"People will be watching what they do with their balance
sheet going forward," RBC Capital's Watt said.
Investors will also get a fresh glimpse of the U.S. housing
sector at 10 a.m. (1500 GMT) with the release of existing home
sales data for December.
(Additional reporting by Jessica Mortimer in London;
Editing by Chizu Nomiyama )
