Sterling holds above $1.30; focus on COVID-19 cases and Bank of England

* Graphic: World FX rates in 2020

* Graphic: Trade-weighted sterling since Brexit vote

LONDON, Aug 3 (Reuters) - The pound was steady on Monday, strengthening versus the euro and holding above $1.30, as investors weighed the government's strategy of local lockdowns and looked ahead to the Bank of England's policy meeting on Thursday.

July was the pound's best month versus the dollar in more than a decade, although analysts said that had more to do with the dollar's weakness than the pound's strength.

The pound reached $1.3170 - its highest in nearly five months - on Friday.

Lockdown measures in parts of northern England were made stricter last week and some England-wide re-opening measures were postponed.

A "major incident" has been declared in the Manchester area of Britain, a local official said on Sunday, due to rising COVID-19 cases.

Britain has the fourth-highest coronavirus death toll in the world, according to a Reuters tally of official statements.

"In contrast to the beginning of the pandemic, the British government is now taking far tougher action to prevent the virus from spreading again at a rapid rate," Commerzbank analyst Thu Lan Nguyen wrote in a note to clients.

"The trauma of the first phase of the virus, in which the British government introduced a lockdown late compared to most other European countries, which is why the UK temporarily became a corona hotspot, seems to be deep-seated," she said.

"However, the fact that the British government appears to be capable of learning is now being rewarded with a strong pound," she added.

At 0801 GMT, the pound was at $1.3082, little changed since New York's close on Friday. Versus the euro, it was up around 0.1% at 89.935 pence, after slipping below the 90 mark for the first time in two weeks on Friday.

Two-thirds of British businesses say they are now "fully operational" after the coronavirus lockdown, up from half in June, according to a survey on Sunday.

But speculators' net short position on sterling got bigger in the week to July 28, weekly futures data showed.

Brexit, the UK's high COVID-19 death toll, and the risk of negative interest rates are all commonly cited as reasons for the market's bearishness.

Investors are cautious before the Bank of England meeting on Thursday, where analysts expect the policy rate and quantitative easing program to remain unchanged.

"We still expect the BoE to express caution over the highly uncertain economic outlook given the risk of further disruption from a second COVID wave, and the risk of another hit to growth later this year when the job furlough scheme expires in the autumn," wrote MUFG currency analyst Lee Hardman.

(Reporting by Elizabeth Howcroft, editing by Larry King)

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