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UPDATE 2-Sterling strengthens, set for 0.4% weekly gain against euro

* Graphic: World FX rates in 2020 tmsnrt.rs/2egbfVh

* Graphic: Trade-weighted sterling since Brexit vote tmsnrt.rs/2hwV9Hv (Updates prices)

LONDON, March 26 (Reuters) - The pound strengthened on Friday, even after European leaders stepped up warnings about limiting vaccine exports, with market participants generally upbeat about Britain’s vaccine rollout and economic outlook.

After a meeting of European leaders on Thursday, European Commission chief Ursula von der Leyen said AstraZeneca could not export any more COVID-19 vaccines from Europe until it fulfilled its contracts with the EU.

Sterling’s gains versus the euro this year have been largely due to Britain’s faster vaccine rollout, relative to Europe, analysts say, meaning that the EU-UK vaccine row could affect euro-sterling.

But German Chancellor Angela Merkel said on Thursday the EU aimed to achieve a “win-win” situation with Britain over vaccine supplies, and a UK minister said on Friday that Britain had enough supplies to vaccinate all adults by the end of July.

At 1658 GMT, sterling was up 0.2% against the euro, at 85.535 pence per euro. It was on track for a 0.4% gain against the euro for the week as a whole.

Versus the dollar, the pound was up around 0.4%, at $1.379 .

Jeremy Stretch, head of G10 FX strategy at CIBC Capital Markets, said the UK-EU vaccine row was having limited impact on the pound because it had not escalated into a tit-for-tat trade spat, and sterling was being lifted by the “risk-on” sentiment in markets more broadly.

He said the euro-sterling pair could head towards 84 pence per euro, as April is typically a strong month for the pound.

British retail sales partly recovered in February, in line with a Reuters poll of economists.

“The economic wheel of fortune seems to be turning back in the UK’s favour. A successful vaccine rollout, aggressive policy support and a solid global backdrop set the stage for at least two years of rapid economic rebound from the massive pandemic shock of 2020,” Kallum Pickering, senior economist at Berenberg, wrote in a note to clients.

“We expect a strong consumer-led recovery from spring onwards as savings normalise, face-to-face services re-open and manufacturers step up production to meet rising demand.”

Bank of England policymaker Michael Saunders said on Friday there might be more spare capacity - potentially meaning less inflationary pressure - in Britain’s economy after its COVID-19 crash than the central bank said last month.

Reporting by Elizabeth Howcroft; Editing by Robert Birsel, Larry King and Alison Williams

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