Sterling hit a six-week high against the euro on Thursday after data showed Britain's service sector, a key engine of economic growth, expanded more than expected last month. The Chartered Institute of Purchasing and Supply/NTC index of service sector business, which ranges from food catering to IT consulting, rose to 55.9 in January from 54.9 in December. Analysts had predicted a more modest rise to 55.3.

Data also showed that UK house prices rose for a second straight month in January, suggesting that it is too early to bet that interest rates have peaked at 4.75 percent.

The pound hit its highest levels versus the euro since December 21 at 68.85 pence. By 1505 GMT, the pound stood at 69.02 pence per euro, up around 0.2 percent on the day.

Sterling stood at $1.8776 against the dollar, down around 0.4 percent on the day.

The pound had risen half a cent against the dollar after the services data but reversed course in whippy trade as the dollar staged a broad rally in afternoon trade.

British house prices rose 0.8 percent in January, a survey from the nation's largest mortgage lender Halifax showed, hinting the real estate slowdown may be moderating.

The Bank of England meets next Thursday to decide on interest rates. It is widely expected to keep the cost of borrowing unchanged but analysts are divided on the chances of further rate hikes.

Sterling also hit 6-week highs against a trade-weighted basket of currencies at 103.30.

UK Chancellor of the Exchequer Gordon Brown and Bank of England Governor Mervyn King are due to speak at a conference on Friday before the G7 policymakers meeting starts in London.

Copyright Reuters, 2005