May 28 (Reuters) - Sterling was steady against the

dollar on Wednesday, hovering near Monday's three-year high, as

it continued to be supported by favourable economic data last

week as well as Britain's recent trade deals.

Investors also looked towards a multi-year spending review

by finance minister Rachel Reeves in two weeks which will set

the budgets for public services.

Sterling was little changed at $1.3511 but stayed

close to the three-year high of $1.3593 it touched on Monday.

It was little changed against the euro, with the euro

broadly flat at 83.86 pence in its seventh week of losses

against the pound.

"Sterling's done pretty well recently," Rabobank strategist

Jane Foley said, pointing to stronger-than-expected inflation

and slightly stronger retail sales data last week and trade

deals that Britain struck with both India and the U.S. as

reasons for the currency's resilience.

However, the spending review is pushing attention back onto

the challenges that Reeves faces around the fiscal situation in

the country, Foley said, as the government, which had pledged

not to increase taxes and keep spending tight while still

fuelling economic growth, seems to be prepared to pour more

money into defence and health, among other issues.

Reeves is due to set out budgets for individual government

departments for the next three years in a spending review on

June 11, after the overall total was outlined in October.

"There's obviously a bit of a conundrum for her to face,

and that could create perhaps a few headwinds for sterling,

given that it has had a reasonably good run for now," Foley

said.

Sterling has risen by 8% against the dollar so far this

year, and has regained ground against the euro in the past weeks

from its April lows at 87.38 pence.

Last week's data showed that British retail sales jumped in

April, while the inflation print erased market expectations for

a cut at the Bank of England's next meeting in June.

"The BoE is still trying to manage these dual elements of

sticky inflation and sluggish growth," said Paul Hollingsworth,

head of developed markets economics at BNP Paribas, during a

call presenting the French bank's global economic outlook.

Despite optimism around the "green shoots" from consumer

spending data, Hollingsworth warned of supply-side woes and the

prospect of further fiscal consolidation measures over the

coming months.