Post-budget rally keeps sterling hovering around five-week high

By Joice Alves

LONDON, Dec 5 (Reuters) - Sterling edged up against the dollar and was set for its second consecutive week on the rise as budget worries receded and a revision of UK business activity this week offered some support.

The pound has jumped in the last week after British finance minister Rachel Reeves' long-awaited budget passed the bond market's test without too much fuss.

On Wednesday, November's S&P Global UK Composite Purchasing Managers' Index, which incorporates both services and manufacturing activity, was revised upwards.

That all left the pound up 0.13% at $1.3344 on Friday, marching towards Thursday's more than five-week high of $1.3385.

Against the euro, sterling also edged 0.1% higher at 87.28 pence, having hit an almost five-week high on Thursday. It is set for the third consecutive weekly increase against the single currency.

Chris Turner, Global Head of Markets at ING, attributed the sterling rally to short squeeze positions, in which traders, who were betting against the currency, are now buying it back.

ING were "a little bearish on the dollar and have a year-end GBP/USD target at $1.34," he said. "But we also favour some sterling underperformance against the euro as the Bank of England restarts its easing cycle this December."

The BoE is widely expected to reduce borrowing costs by 25 basis points to 3.75% in December, after keeping them on hold in November.

Britain's housing market slowed in November in both annual and monthly terms, figures from mortgage lender Halifax showed on Friday.

Some other measures of Britain's housing market have suggested a slowing in house price growth, attributed to caution among homebuyers before the November 26 budget.

Also supporting the sterling rally, there were expectations that the Federal Reserve will cut rates when it meets next week. Those bets have weakened the U.S. dollar, which is set for weekly declines.

(Reporting by Joice Alves; Editing by Andrew Heavens)