* Sterling to stay weak on economic concerns, BoE QE bets
* Investors wary of sterling before UK budget on March 20
* Sterling index equals recent 20-month low
By Philip Baillie
LONDON, March 11 (Reuters) - Sterling fell to a 2-1/2 year low against the dollar on Monday as hedge funds and long-term investors sold the pound, which they see as susceptible to more weakness given contrasting outlooks for the British and U.S. economies.
While strong U.S. jobs numbers late last week bolstered speculation that the Federal Reserve may curtail its asset purchase programme later this year, Britain may be set to enter its third recession in four years. That is likely to drive the Bank of England to print more money to support the economy.
As a result, investors are likely to sell sterling on any upticks and the pound is likely to suffer in coming days and could ease towards $1.47, traders said.
The pound has been one of the worst performing major currencies in 2013, falling 8.4 percent against the dollar and 7.6 percent against the euro. Its latest losses dragged the trade-weighted sterling index back down to a 20-month low of 78.10 first struck on Feb. 25, data from the Bank of England showed.
"The downtrend is quite well established, the momentum is still very strong to the downside and to fight against that you need some news flow moving in the opposite direction but it's not sure what that is going to be," said Daragh Maher, currency strategist at HSBC.
He added minutes from the central bank's Monetary Policy Committee on the likelihood of further asset purchases, focus on the UK budget on March 20 and data releases were not likely to provide relief for sterling.
"The only thing that can help sterling at this point is if the market gets a sense we have moved a long way quite quickly, which on any recent chart seems to be the case, but on any longer chart the move seems rather modest."
Sterling earlier shed 0.3 percent to $1.4868 - its lowest since mid-2010 - with some bids from Asian central banks cited at $1.4860/70 that could check losses for now. It was last down 0.2 percent at 1.4890.
The pound fell below $1.49 for the first time in more than 2-1/2 years on Friday on news that U.S. non-farm payrolls surged by 236,000 last month, pushing the jobless rate down to 7.7 percent - the lowest since December 2008.
The spreads between two-year U.S. government bonds yields and their British counterparts are moving in favour of U.S. debt, underpinning dollar demand.
The pound also lost ground against the euro. The euro was last up 0.3 percent against sterling at 87.30 pence, though some said the euro's gains are likely to be curtailed by lingering concerns about Italy.
Fitch lowered Italy's sovereign rating by one notch to BBB-plus, with a negative outlook, due to political uncertainty after inconclusive elections.
Analysts said investors will be more comfortable in expressing a bearish view on the British economy by selling the pound against the dollar rather than the euro.
UK industrial and manufacturing data for January due on Tuesday is expected to show little or no monthly growth and could compound concerns Britain is lurching towards a recession.
"We have industrial production data coming up ... given the weakness we have seen in the manufacturing PMIs, if that comes in weak as well that could put sterling under further pressure," said Ian Stannard, head of European FX strategy at Morgan Stanley.
"Sterling is going to continue to be the underperformer within the G10 alongside the yen. We are looking for cable (sterling/dollar) to move lower to the $1.47 level in the next week."
Both the Bank of Japan and the BoE are looking to aggressively ease monetary policy to get their respective economies out of a slump. Speculation is mounting that Chancellor George Osborne may announce a review of the BoE's remit when he presents his budget on March 20 and give it more leeway on inflation targeting.