Pound hits 8-month high vs dollar

LONDON (Reuters) - Sterling hit an eight-month high against a broadly weaker dollar on Tuesday due to surprisingly strong house prices, before trimming gains after weak gross domestic product figures showed the economy continues to suffer.

Those gains helped to push sterling's trade-weighed index to its highest since November. Trade was volatile on the last day of the quarter and half-year, and analysts said demand to buy and sell the dollar was driving broader currency movements.

Sterling initially rose more than 1 percent on the day against the dollar to $1.6745, its highest since mid-October, after the Nationwide building society said house prices rose 0.9 percent in June, confounding forecasts for a fall.

The figures took the annual rate of house price decline to 9.3 percent, the smallest fall since July 2008, which some traders took as a signal that the ailing market was finally showing signs of stability.

Sterling's rally was short-lived however, and the currency frittered away some gains after other figures showed that the economy contracted by 2.4 percent in the first quarter, more than an initial reading for -1.9 percent, which cooled some recent optimism that the economy may be stabilising.

"The UK GDP numbers were not great, so we've seen a pullback in sterling as a consequence," said Steve Barrow, head of G10 currency research at Standard Bank in London.

By 11:11 a.m., sterling traded at $1.6600, 0.3 percent higher on the day's but off the high hit earlier in the session.

On a trade-weighted basis, the pound rose as high as 84.7 in the wake of the currency's rally against the dollar when London trade got underway.

The euro was little changed at 85.05 pence, recovering from a slide to 84.37 pence.