Sterling index heads for first weekly gain in a month

By Patrick Graham

LONDON (Reuters) - Sterling was set on Friday for a second week of gains against the dollar and its first against a basket of currencies since the start of December, riding out nerves about the government's preparations for Brexit talks due to start in March.

Prime Minister Theresa May is expected to seek to quash charges of indecisiveness - The Economist's front page this week called her "Theresa Maybe" - with a speech later this month outlining her central aims for the talks.

There may be little comfort in that for financial investors, however, with British newspapers reporting the speech will make control of immigration a red line that will not be sacrificed in return for membership of the EU single market.

Worries about a big economic hit as a result of such a stance have been at the heart of sales in sterling since the referendum vote to leave the EU last May. Yet, helped by more robust than expected economic data, the currency has proved more robust since early November.

It was around a third of a cent off Thursday's 2-1/2 week highs against the dollar on Friday, and just 0.1 percent weaker against the euro. That put the Bank of England's broader trade-weighted index of sterling strength on course for a gain of just under half a percent.

"Brexit remains a dominant theme for the direction of the pound and it looks like the continued surprising strength of the economy is helping counter Brexit uncertainty," said Derek Halpenny, head of global market research at Japan's MUFG in London.

He said that as important as the government's attitude to immigration and the single market would be whether May put more emphasis on plans to seek a longer transitional period to smooth an exit that would be due within two years of starting talks.

"The longer the transition, the less concerned markets should be over negative implications, which should help support the pound."

There was no frontline UK data due on Friday, with the next major releases - retail sales and industrial output numbers - due towards the end of next week. U.S. non-farm payrolls data at 1330 GMT will dominate trade on Friday.

This week's surveys of sentiment among sectoral purchasing managers have all been better than expected. [GB-PMI-M]

(Editing by Catherine Evans)