act normal towards him, especially if its only his sister that told you.. and not him
dont take anything seriously until he tells u himself
then if you dont like him, tell him how you feel, that you like him only as friends
it will more likely be better to save the friendship than you leading him on !!
1. His little sister is making it but to either get ur attention or continue an interesting conversation.
2. He told his little sister to tell you because he was too pussy to himself.
3. His little sister is just guessing... as little sisters do.
What do you do about it? Absolutely nothing. If scenerio 1 is correct then nothing will happen from it and you will obviously uncover the lying little shit for what she truly is... an attention seeking little brat ;-)
If scenerio 2 is true... she will obviously tell him that she told you and he'll either make a move or totally back away from you... this will show u scenerio 2 is correct...
Or finally if he approaches u and says "Look, Lil Sis made it all up" its because scenerio 3 is correct and lil sis got found out... and you continue ur friendship.
Otherwise just sit tight and dont force yourself to like him. If you really dont have legit feelings for him its better for u just to sit tight and let the events unfold in front of your eyes.