By Stephen Hughes

Sterling fell on Friday on renewed concerns about the banking system after British bank Lloyds reported a massive loss for 2008 and as investors reassessed a UK government plan to insure banks’ toxic assets.

The safety of the dollar again came into play as investors moved their money across the Atlantic.  ”The woes of the UK banking system are in focus again,” said Geoffrey Yu, currency strategist at UBS, and recent announcements “raise concerns of widespread bank nationalisation.”

Sterling had risen broadly on Thursday after the British government announced a scheme under which it could end up insuring more than 500 billion pounds of bad assets in an attempt to get lending flowing again.

Despite the pound’s slump on Friday, analysts say the government’s plans to help ailing banks would eventually be supportive for the UK currency, especially against the euro.

“In general, the UK is ahead in dealing with the banks, and therefore sterling is generally a better position compared with the euro,” said Adarsh Sinha, currency strategist at Barclays.