(Reuters) - Pound hit its highest in more than two and a half years against a basket of currencies on Friday, driven by gains versus the euro and the dollar as it remained a popular alternative to the troubled common currency. A Spanish ratings downgrade and weak jobs data encouraged investors to seek the relative safety of the pound, pushing it to its strongest in 22 months against the euro and its highest in nearly 8 months against the dollar. Many analysts expect euro zone debt problems and political uncertainty to boost the UK currency further towards the 80 pence per euro mark though worries lingered about the UK economy after data showed it entered recession in the first quarter. The euro fell to 81.345 pence, its lowest level since June 2010. It recovered slightly to 81.53 pence after Italy successfully sold debt, albeit at a high cost, though this still left it down 0.15 percent on the day. "There is an element of safe haven status for sterling now. If investors want to invest in Europe but don't want to risk Spanish or Italian bonds then the UK is a good proxy," said Alex Lawson, senior broker at Moneycorp. Sterling's broad gains lifted its trade-weighted index to 83.4, its highest since August 2009, Bank of England data showed. Lawson said the pound could rise to 80 pence per euro in the medium term but said much beyond that it "may struggle". "The UK is still an awful long way from tighter monetary policy and the tentative signs of recovery could easily be extinguished". Sterling's next target against the euro is the June 2010 high of 80.67 pence. Beyond there would take it to levels not seen since the aftermath of the Lehman Brothers' collapse in autumn 2008. But traders said its gains may be limited for now due to reported demand to buy euros around 81.30 pence and an options barrier reported at 81.25 pence. GAINS VS DOLLAR Sterling's gains were broad-based, lifting it to $1.6236 against the dollar, its strongest since September last year. A survey overnight by GfK showed UK consumer morale weakened in April, but data recently has been mixed, with lender Nationwide on Thursday reporting consumer confidence hit a nine-month high last month. "Technically the UK is in recession but the pound has not sold off massively, which suggests maybe it has found a new range," said Lee McDarby, head of dealing for corporate and institutional treasury at Investec. "Sterling is benefiting from people diversifying out of euros and there aren't many choices out there." The pound has performed well since Bank of England minutes last week suggested policymakers were unlikely to opt for more quantitative easing due to worries that inflation may not be falling as they expected. Some analysts also believe the UK economy is on the road to recovery and that first quarter gross domestic product figures - which earlier this week showed a 0.2 percent contraction - may be revised up. Others, however, warn it remains vulnerable due to its strong trading links to the euro zone, and BoE Monetary Policy Committee member Martin Weale said on Friday the bank's growth forecasts may have been too optimistic. On Thursday, Weale said GDP figures were a disappointment and strengthened the case for more quantitative easing.

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