* Sterling steadies at 97.37 pence vs euro, near record low
* Pound to register record yearly drop vs single currency
* Stg fall vs dlr seen biggest since gold standard abandoned
* UK economic, fiscal problems to weigh further in 2009
By Veronica Brown
LONDON, Dec 31 (Reuters) - Sterling steadied in quiet trade on Wednesday, on track for its worst yearly performance against the euro since the single currency's inception almost a decade ago as a bleak outlook for Britain's economy hobbled sentiment.
Worries about rising UK unemployment, deteriorating public finances and aggressive rate cuts have pummelled the pound in recent months.
The 26-year highs hit just over a year ago above the psychologically-key $2 mark are a dim and distant memory.
Sterling's 27 percent slide against the dollar over the year to date looks would be the sharpest since the gold standard monetary system was abolished in 1971.
The pound hovered at 97.37 pence, near Tuesday's record lows
against the euro and just over two pence shy of parity
Analysts said there was nothing to prevent further losses.
"There's a lot of talk about just how much oxygen remains for euro/sterling at these sorts of heights," said Neil Mellor, currency strategist at BONY Mellon in London.
"But ultimately I think there's a significant chance of UK interest rate expectations falling further ultimately towards where U.S. rates are. Pending some volatility I think we will see parity and perhaps even beyond that."
Against the dollar, the pound was flat at $1.4442
This year's sharp falls against the currencies of the UK's main trading partners brought the pound to successive historic lows on a trade-weighted basis <=GBP>, according to daily records kept by the Bank of England going back to 1990.
On Wednesday, trade-weighted sterling was at 73.5, having slipped to 73.3 in the previous session.
The euro has soared by over 32 percent against the pound this year, jumping almost 18 percent so far this month alone.
YIELD IN FOCUS
Lower UK interest rates compared with the euro zone have become the latest reason to sell sterling against the euro.
The Bank of England has slashed rates by three points since October to 2 percent, leaving them lower than the 2.5 percent in the euro zone, with more cuts expected in 2009 [BOE/INT].
Markets have fully priced in a cut in rates to 1.5 percent
when the BoE meets on January 8, while indicating the
possibility of a bigger reduction
"Further reductions will be seen during the early part of 2009 as the race to zero continues," said James Hughes, market analyst at CMC Markets in London in a note to clients.
Yields on UK 10-year government bonds
Economists forecast a sharp contraction for the British economy next year and fear high UK government debt levels will limit room for additional stimulus measures to temper recession. (Additional reporting by Eric Burroughs in Hong Kong) (Reporting by Veronica Brown; Editing by Mike Peacock)