Pound jumps vs euro

By Veronica Brown

LONDON (Reuters) - Sterling rose to a three-week high against a weakened euro on Tuesday, moving further away from parity to the single currency but held down against the dollar as data underlined the UK's economic vulnerability. The euro's losses mounted after it suffered a record one-day loss against the pound on Monday, with lower-than-expected inflation data firmed expectations speculation that the European Central Bank will cut rates later this month.

The single currency's losses also took the euro to three-week lows against the dollar, while it sank sharply versus the yen. It had hit a record high above 98 pence against sterling on Dec 30.

"There would have been a view that the ECB could have held its nerve and maybe not cut rates further here, but the data suggests that the growth forecasts that the ECB have got are just far too optimistic," said Paul Robson, FX strategist at RBS in London.

The European Central Bank meets next week to decide on interest rates, with markets pricing in a cut of 50 basis points to 2 percent and some now leaning towards 75 bps.

By 2:58 p.m., the euro had fallen 0.8 percent to 91.77 pence, having earlier hit 91.00 pence according to Reuters data -- the pair's lowest since mid-December.

But weak economic data kept dire fundamentals at the forefront of investors' minds, with the pound down 0.5 percent on the day at $1.4613.

House prices fell another 2.5 percent in December to make 2008 their worst performing year on record, the Nationwide Building Society said earlier on Tuesday.

Separate figures from Nationwide showed consumer morale sank four points to 47 last month -- the lowest since the survey began in 2004 -- on worries about job losses resulting from the economic downturn.