* Yellen steered clear of monetary policy outlook
* Sterling holds near 10-1/2 month lows vs euro
LONDON, Aug 25 (Reuters) - Sterling jumped on Friday to its highest level in four days after Federal Reserve Chair Janet Yellen made no reference to U.S. monetary policy in her speech, though analysts warned the outlook remained bleak for the British currency.
Investors were not expecting Yellen to make a policy statement anyway, but some market participants were hoping for some signal at least on the Fed's planned balance sheet reduction, if not on the outlook for U.S. interest rate hikes.
Instead, Yellen focused on U.S. financial reforms at the central banking conference in Jackson Hole.
"Some of these moves are exaggerated in a thin market and we should see some profit taking at these levels as nothing fundamentally has changed for the sterling," said a trader at a U.S. bank in London.
Sterling bounced 0.7 percent to $1.2875 and is set for its biggest daily rise in nearly a month. On a monthly basis, it is still down more than 2.5 percent so far in August. "Broader markets are happy to push sterling lower with any negative news, and there is a big gap opening up between the outlook of both the eurozone and the UK economies," said David Madden, a markets analyst at CMC Markets in London.
Against the euro, it held close to a low of 92.37 pence reached on Wednesday, a level it last tested in October 2016. The pound has weakened more than 5 percent against the euro since mid-July.
The government is trying to move forward formal discussions on leaving the European Union, issuing a series of position papers that have outlined potential compromises over key issues.
(Reporting by Saikat Chatterjee; Editing by Keith Weir)