* BoE keeps rates, bond-buying pace on hold * Bank sets out path for slowing stimulus * Sterling briefly rises further vs dollar and euro * Graphic: World FX rates in 2020 tmsnrt.rs/2egbfVh * Graphic: Trade-weighted sterling since Brexit vote tmsnrt.rs/2hwV9Hv (Adds new quote, latest prices after Bailey news conference) LONDON, Aug 5 (Reuters) - Sterling held onto a modest gain on Thursday after the Bank of England laid out its plans for how it would start to wean the British economy off vast stimulus but kept the taps running for now despite rising inflation. With some policymakers elsewhere beginning to taper asset purchases, the focus was on signals from the BoE and its Governor Andrew Bailey as to when it would begin to ease off the stimulus pedal. Sterling rose as high as $1.3946 after the BoE decision but later fell back to $1.3913, up 0.1% on the day and close to where it was before the announcement. The BoE said its Monetary Policy Committee voted 7-1 to keep its government bond-buying programme at 875 billion pounds ($1.22 trillion). Price growth could hit 4% later this year - double the bank’s target - as demand bounces back from the pandemic, the BoE said, although crucially policymakers still see inflation rises as temporary. But the BoE sent a clear message of how it plans to rein in its stimulus, when the time comes. It said it would start cutting its stock of bonds when its policy rate reaches 0.5% by not reinvesting proceeds, if appropriate given broader economic conditions. It would then consider actively selling down holdings when the rate reaches at least 1%. “The hurdle for unwinding the size of the balance sheet has been moved substantially lower. While at face value the Bank’s desire to communicate its plans to reduce its Gilt holdings could be read as a hawkish signal, market pricing still suggests that the 0.5% interest rate threshold won’t be reached until 2024 at the earliest,” said Hugh Gimber, a global market strategist at JP Morgan Asset Management. “Ultimately, given a choice of tightening policy too early or too late, the Bank currently appears far more comfortable with the latter option.” Gilt yields initially jumped, with the 10-year yield up to 0.540% compared with 0.510% just before the statement. It was was last at 0.531%. Two-year yields also rose as high as 0.108% before easing to 0.089%, still up more than 2 basis points on the day. . Sterling has been a strong performer in recent weeks as COVID-19 cases - while still high - have fallen and high vaccination rates have allowed the British government to lift most social-distancing rules. Britain’s economy has recouped much of its 10% crash of 2020 and is on course to match the United States and grow at the fastest pace among major affluent nations this year. “The economy is cautiously reopening but the Bank of England’s Monetary Policy Committee has yet to see enough economic activity to justify adjusting its current policy,” said Jeremy Batstone-Carr, a European strategist at Raymond James. Ahead of the BoE meeting analysts said sterling was at risk after some hawkish noises were already priced into the pound, although Britain’s strong economic momentum should keep the pound from falling much from current levels. (Reporting by Tommy Wilkes, editing by Timothy Heritage, Mark Heinrich and Andrew Heavens) Our Standards: The Thomson Reuters Trust Principles.