Pound Reaches Highest in 25 Years on U.K

NEW YORK, April 18 (Reuters) - The dollar touched a 26-year low against sterling and traded near a record low versus the euro on Wednesday as expectations for U.S. rate cuts contrasted with prospects for monetary tightening in Europe and Asia.

The greenback pared some of its earlier losses against the euro and sterling, but it fell against the yen. It also held near Tuesday's 17-year low against the Australian dollar.

The pound touched its strongest in more than a quarter-century after a U.K. report showed wage growth quickened and the Bank of England's minutes said two policy makers voted for higher interest rates.

Interest-rate futures showed traders added to bets the bank will raise its benchmark twice this year, to the highest among Group of Seven nations. The government today reported incomes grew at the fastest pace since 2004 after yesterday saying the rate of inflation was the quickest in a decade. The pound later erased gains as technical charts implied it had surged too fast.

``The job report this morning reinforced expectations the bank will move soon, and the pound responded,'' said Andrew Milligan, head of global strategy in Edinburgh at Standard Life Investments, which oversees about $265 billion of assets. ``The market is driven by rate expectations and differentials.''

The currency rose as high as $2.0133, the strongest since June 1981, two years after Margaret Thatcher became prime minister. It was at $2.0045 at 4:35 p.m. Against the euro, it traded at 67.75 pence, from 67.61 yesterday, after reaching a two- week high.

The pound fell from today's highs as charts including the currency's 14-day relative strength index suggested a six-day winning streak was too rapid. The index was at 72 today. A reading above 70 or below 30 indicates a possible reversal.

``The momentum for the pound to rise is still there,'' said Gavin Friend, head of currency strategy at Commerzbank in London. ``The move higher won't be a straight line.''

Britain's economy was racked by inflation, strikes, high unemployment, and budget and trade deficits when Thatcher came to power in May 1979.

Thatcher Days

Her policies of higher rates and the abolition of exchange controls, along with soaring North Sea oil production, helped push the pound to as high as $2.4175 in September 1980.

The currency has risen 12.8 percent in the past 12 months and yesterday breached $2 for the first time since 1992.