Sterling jumps on unexpected spike in UK GDP

* Sterling jumps as UK Q2 GDP is nearly double forecasts

* Weak euro falls 1.4 pct vs stg; pound up 0.8 pct vs dlr

* UK economy grows 1.1 pct in Q2, the fastest in 4 years

* European bank stress test results in focus

By Jessica Mortimer

LONDON, July 23 (Reuters) - Sterling rose sharply on Friday, boosted by unexpectedly strong UK economic growth numbers which left it on course for its biggest one-day percentage gain against the euro in more than seven weeks.

Data showed gross domestic product jumped 1.1 percent on the quarter, the strongest growth in four years and almost twice as fast as forecasts for 0.6 percent. [ID:nAHLMIE64J]

The data showed the economy entered the second quarter of the year on a much firmer footing than previously thought, soothing concerns that the government's planned austerity measures could put a sharp dampener on the recovery.

"Whichever way you look at it those GDP numbers were very good figures," CMC Markets analyst Michael Hewson said.

"This suggests the situation with the UK economy is not as bad as previously thought and it allows a little optimism going into the second half of the year".

At 1451 GMT, sterling was up 0.8 percent against the dollar GBP=D4 at $1.5377, having earlier risen around 2 cents on the day to hit a session high of $1.5450.

The latest gains brought last week's high into view around $1.5473 -- the pound's strongest level since late April. Beyond there, the April high of $1.5524 could be targeted.

Traders said clearing the $1.5500 level may be difficult, however, with options barriers seen at that level.

The pound was also on course for its biggest one-day percentage gain against the euro in more than seven weeks as the common currency came under selling pressure ahead of the release of European bank stress test results at 1600 GMT.

The euro tumbled 1.4 percent against the pound EURGBP=D4 to 83.33 pence, leaving it on course for its biggest one-day drop since at least June 1.

"If the euro stays below 84 pence, the downside could reassert itself," CMC's Hewson said.

Sterling's broad gains pushed its trade-weighted index =GBP up to a 2-1/2 week high of 81.5.

CAUTION AHEAD

The strong UK GDP data triggered bets that the Bank of England could start raising interest rates sooner than previously thought, causing UK interest rate futures to plunge. [GB/]

Analysts and traders said sterling's gains may be limited, however, as the European bank test results could leave investors wary of taking on risk.

They also warned the second quarter growth figures were likely to be as good as it gets for the UK, with the economy facing a number of headwinds as the government slashes public spending in an attempt to reduce high levels of debt.

"In the near term sterling could see more gains, but longer term the picture is more bearish as some of the more forward-looking indicators on the UK have been declining recently, which could leave the pound vulnerable," BNP Paribas' Stannard said.

Data from the British Bankers' Association on Friday showed mortgage approvals in Britain fell 8 percent in June from a year ago, while mortgage lending growth also slowed. [ID:nLAC005753]

"Household confidence has been heading down recently and significant concerns over the strength and sustainability of the recovery may well be intensified by the extra austerity measures that were announced in June's emergency budget," Howard Archer, economist at IHS Global Insight said in a note to clients.

(Editing by Ruth Pitchford)