STERLING rebounded in late European dealing yesterday after Chancellor Gordon Brown said he wanted a stable pound and rejected any move to massage the UK currency lower.

''The policy of the Government is a competitive and stable exchange rate over the medium term but what we are not going to get into is the policy of continuously long-term devaluing the pound, '' he told Parliament.

The Chancellor's remarks gave the pound fresh momentum after it fell to new eight-week lows on benign retail sales data and a newspaper report that the Bank of England's monetary policy committee voted five-to-three in favour of leaving interest rates unchanged at its April meeting.

The panel was evenly split at its previous monthly meeting.

The pound was trading at around DM3 and above $1.66 last night, up from Wednesday's late levels.

Rising base rates - or the threat of an increase in the cost of borrowing - have been the main force behind the pound's increase since the middle of 1996 and the newspaper story was one of the first signals that the Bank of England committee may have done enough to ward off inflation pressures in the economy.

At the same time, there has also been recent talk of possible upward pressure on rates in Germany, a move that would reverse the direction across Europe and could mark a decisive shift in sentiment towards the pound.

Despite yesterday's rebound, many City analysts said they expected sterling to retreat in the coming weeks as the threat of higher rates wanes.

''We're going to see a gradual acceptance of the fact that rates have peaked and that in itself will cause sterling to fall further . . . even if GDP figures are strong,'' said Darshini David, UK economist at HSBC Securities. He was referring to gross domestic product figures which will be published today.