Sterling rally vs dlr gathers pace on bank rescues

LONDON, Oct 13 (Reuters) - Sterling extended early gains against the dollar on Monday after Britain's Treasury stepped up efforts to revive its ailing financial sector by injecting capital into the country's biggest banks.

In a bid to stem a deep financial crisis, the UK Treasury on Monday said three major British banks could take 37 billion pounds ($64 billion) in government money to boost their capital [nLD69629].

Dealers and analysts said a positive response from the pound and UK stocks, both clawing up after hefty falls last week to five year-lows, reflected an easing in extreme risk aversion.

"There's been a good response to the lead our country has taken in rescuing the banking sector," said a trader in London, adding that the British initiative was continuing to support sterling.

By 1230 GMT, the pound had hit session highs of $1.7384 <GBP=>, well away from five year lows hit last week around $1.68.

(Reporting by Naomi Tajitsu and Veronica Brown)