* Sterling rises vs dollar, hits 7-week trade-weighted high * Data unexpectedly shows UK services sector growth at 4-mth high * Pound dips vs euro but still near earlier 2-month high * Sterling jumps vs Swiss franc after SNB announcement By Jessica Mortimer LONDON, Aug 3 (Reuters) - Sterling rose against the dollar and hit a seven-week trade-weighted high on Wednesday after data unexpectedly showed activity in the UK's dominant services sector grew at its fastest pace in four months. The Markit/CIPS services purchasing mangers' index rose to 55.4 in July from 53.9 in June, confounding forecasts for a slowdown to 53.2 and raising hopes the economy may pick up. However, analysts said sterling's gains were likely to be limited as concerns remain about the fragility of the UK economic recovery, particularly after data earlier this week showed a contraction in manufacturing activity. "This is a mildly positive story but sterling is not going to run away on this," said Simon Smith, economist at FXPro. "We are likely to see more of these kind of fluctuations as the market flips between believing this is just a soft patch in the economy and thinking it may be something far worse". The pound rose 0.6 percent against the dollar to $1.6390 , leaving in sight the two-month high of $1.6477 which it hit earlier this week. These gains helped lift the pound's trade-weighted index to 79.7, its strongest since mid-June. The euro traded at 87.32 pence against sterling , up 0.25 percent on the day but not far from an earlier two-month low of 86.955 pence. Traders also said strong demand from UK importers to buy euros above 1.15 euros per pound -- roughly around the day's high for sterling versus the euro -- capped the pound's gains and pushed it off its highs. The euro also gained broadly after the Swiss National Bank announced easing measures to counter the recent sharp appreciation in its currency, causing a spike in the euro against the Swiss franc which lifted the single currency across the board. "Sterling is essentially reacting to everything else going on ... it is a play between major currencies and is being pulled between then," said Geraldine Concagh, economist at AIB Group Treasury in Dublin. The pound also posted strong gains against the safe-haven Swiss franc , rising 2.3 percent on the day to 1.2731 francs, well above a record low hit on Tuesday around 1.2395 francs though it was still down nearly 2 percent on the week. The euro had come under pressure earlier in the session on concerns that the euro zone debt crisis could spread to larger economies such as Spain and Italy. Analysts expect these worries will continue to dampen investor appetite for risk, which is also likely to weigh on sterling. Disappointing UK data of late has added to the view that UK interest rates will remain at a record low for a prolonged period, while some have suggested more quantitative easing (QE) may be needed to revive sluggish growth in the UK economy. The International Monetary Fund said on Monday that the government should be prepared to cut taxes and the central bank take more steps to pump money into the economy if weak growth is likely to be prolonged. Investors have steadily priced out the chances of a rate hike and are not expecting an increase in 2012, whereas late last month they expected a rate rise in November 2012. (Editing by Anna Willard)

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