Sterling strengthened versus the euro on Thursday, recovering from all-time lows set earlier in the week as investors took a slightly more bearish stance on the single currency as fears that economic weakness may be spreading to the euro zone.

The euro has appreciated sharply versus the pound, rising from 71 pence on December 18 to as high as 76 pence earlier this week as investors took an increasingly negative view on the UK economy and priced in as many as four interest rate cuts in 2008.

The euro was bolstered by a view that its economy has been relatively robust in the face of financial market woes enabling policymakers to take a hawkish stance on interest rates.

But comments from ECB Governing Council member Yves Mersch on Wednesday that he did not rule out a downward revision of euro zone growth forecasts for 2008 saw the pound rally.

"Sterling recovered ground after comments from Mersch about the growth outlook for the euro zone as they were softer in tone," said Geraldine Concagh, economist at AIB Group Treasury in Dublin.

At 0828 GMT the euro was down 0.5 percent to 74.30 pence, well off Tuesday's high of 76.135 pence. The pound was steady at $1.9642.

However analysts continue to see the pound under pressure in the longer term.

"The outlook (from the ECB) is still hawkish and sterling is still vulnerable as the deceleration in UK economic activity has been very sharp," Concagh said.

Investors will look for further clues on the prospects for UK monetary policy when Bank of England Deputy Governor John Gieve speaks at the London Chamber of Commerce President's lunch at 1200 GMT.

Sourced by Reuters.