LONDON, Oct 31 (Reuters) - Sterling scaled a fresh 26-year peak versus the dollar and strengthened against the euro and yen on Wednesday after surprisingly strong UK housing data put expectations of an imminent interest rate cut on ice.

Data from Nationwide building society showed British house prices rose 1.1 percent in October, the biggest increase in four months taking the annual rate to 9.7 percent.

The figures in sharp contrast with recent data showing a cooling housing market are likely to put the final nail in the coffin of expectations of a November UK rate cut from the current 5.75 percent, analysts said. "The market has turned in terms of its understanding of how the UK economy is performing," said Geoff Kendrick, currency strategist at Westpac.

"A couple of months ago it looked as though the economy was going to stumble in the wake of the credit crunch but stronger data is pushing back timing of a rate cut significantly."

By 0837 GMT, the pound had hit $2.0743, its highest level since 1981. The euro was down 0.2 percent at 69.68 pence. Against the yen the pound was up 0.5 percent at 238.30, around two-week highs.

High UK interest rates are making sterling an attractive destination for the carry trade where investors borrow low-yielding currencies like the yen to fund purchases of higher yielding assets.

Investors will look to UK GfK consumer confidence data for October at 1030 GMT for further clues on the prospects for interest rates.

Source supplied by: Reuters