LONDON, May 14 (Reuters) - Sterling rose to its highest innearly six months against a weaker dollar on Thursday, buoyed bycomments from Bank of England chief Mark Carney who said it waspossible interest rates would be higher in a year's time.
Asked in a BBC radio interview if interest rates were likelyto be higher by this time next year, Carney said: "It'spossible, but it depends on the evolution of the economy."
He also said recent sterling strength could be a bit of adampener to growth, echoing comments made on Wednesday when hesaid a strong currency would have a role to play in settingmonetary policy.
The UK economy has outpaced much of Europe over the past twoyears, and the prospect that Britain will be the first to followany rise in U.S. rates has underpinned sterling.
The dollar, though, has come under pressure in thepast few weeks, hurt by concerns that the U.S. economy has beensuffering from more than a winter chill. Retail sales data forApril disappointed on Wednesday and added to a view that theFederal Reserve was unlikely to raise rates in a hurry.
Sterling rose to $1.5789 in early London trade, itshighest since late November, and up 0.3 percent on the day. Itunderperformed the euro, however, which rose 0.2 percent to72.25 pence.
"There is technical resistance at $1.58, but UK importers,who are mainly buyers of dollars, are liking these levels," AlexLydall, senior sales trader, at Foenix Partners, a firm whichmanages hedging mandates for British corporates.
"What Carney is indicating is that rate hikes will be verygradual and that does not come across as a surprise. Butsometimes the market just needs an excuse."
Sterling hit a 7-year high against a trade-weighted basketof currencies on Wednesday on strong wages and jobs data,but was knocked back after the BoE cut its growth forecasts andwarned about a strong pound's impact on the outlook for interestrates.
Commerzbank said in a note that the downgrades toproductivity forecasts indicate the BoE will not be comfortablewith the currency's appreciation over the longer term.
"Indeed, if the forecasts manifest then further sterlingappreciation would not be justified at all. We remain of theview that euro/sterling will trade at lower levels over themedium term more so as a function of euro weakness," they said. (Reporting by Anirban Nag; editing by John Stonestreet)