Pound recovers from record low vs euro

LONDON (Reuters) - Sterling recovered from record lows against the euro on Tuesday, lifted by broad profit taking in the single European currency, but analysts said a slowing UK economy meant the recovery was unlikely to last long.

The euro was pressured across the board by news of further writedowns at Deutsche Bank and UBS, softer-than-expected German retail sales and a retreat in commodity prices.

Its failure to break above key levels of $1.59 and 80 pence on Monday also contributed to the wave of profit taking.

But analysts said sterling's gains could prove short-lived, given soft UK fundamentals and expectations for further Bank of England interest rate cuts -- in contrast to bets the European Central Bank will remain on hold at least in the near term.

"The (pound's) rally against the euro today seems to be more reflective of profit-taking after new highs were reached, and the banking sector data out of Germany and Switzerland may have also weighed a little bit on the euro," said Tom Vosa, head of market economics at nabCapital.

"But as markets start focusing on weaker second quarter growth, I think sterling will continue to head lower."

By 2.46 p.m., the euro was down 1 percent 78.80 pence, around a penny below Monday's peak. But the pound underperformed the dollar, down 0.1 percent at $1.9809.

Tuesday's data gave more proof of a slowing housing market in a country where two-thirds of people own their own home.

The Land Registry said UK house prices were flat on the month in February, while the Royal Institution of Chartered Surveyors said construction activity in the first quarter fell to its lowest level since 1996.

Ratings agency Fitch highlighted further risks to Britain's real estate market, saying that commercial property sector may be hurt by changes to tax charged on vacant commercial assets, while changes in capital gains tax may have a negative impact on the buy-to-let market.

Analysts reckon the next growth-boosting BoE rate cut could come this month or in May, but the danger is that lower rates could further stoke price pressures.

The March Purchasing Managers' Index (PMI) on Tuesday showed manufacturers' input costs at a 13-year high.

(Reporting by Toni Vorobyova)