Sterling stronger, supported by global market optimism

LONDON (Reuters) -Sterling firmed against the dollar and the euro on Wednesday helped by the optimism across global markets after the U.S. and Japan struck a trade deal which boosted stocks and currencies, such as the pound, which can move with global growth expectations.

The pound was last marginally higher against the dollar at $1.3540, its highest in nearly two weeks, and working its way back towards early July's near four-year top of $1.3787.

It strengthened more against the euro, which was down 0.24% at 86.62 pence.

The big story for markets on Wednesday was a trade deal between the United States and Japan that lowers tariffs on auto imports and spares Tokyo from punishing new levies on other goods in exchange for a $550 billion package of U.S.-bound investment and loans.

That boosted stocks globally, and other risk-friendly currencies such as the Australian and New Zealand dollars, as well as the pound. [AUD/]

While the pound is still down against both the euro and dollar in July, some analysts see better days for it ahead, as markets look past the volatility in Britain's bond market at the start of the month caused by fiscal concerns, which weighed on the currency.

BofA analysts said in a note the third quarter promised to be better for the British economy.

"We feel the conditions are now in place for a bounce in GBP through the summer months," they said.

"We do not understate the fragile state of UK public finances but continue to be struck by how markets are willing to find the UK guilty of fiscal breaches before being (given) the opportunity of proving innocence."

They also flagged that rate differentials were moving in the pound's favour, and that "tariff attrition in other countries will eventually materialise."

Thursday's business activity data, and Friday's retail sales data will give the latest indications of the health of the British economy.

(Reporting by Alun JohnEditing by Tomasz Janowski)