By Jessica Mortimer LONDON, May 3 (Reuters) - Sterling rose to a 22-month high against the euro on Thursday as concerns about debt and economic weakness in the euro zone pushed investors towards the relative safety of the UK currency. Analysts expected the pound to continue a gradual ascent, leaving it poised to rise towards 80 pence per euro and hit levels not seen since the aftermath of the collapse of Lehman Brothers in autumn 2008. The pound shrugged off a survey showing Britain's dominant service sector grew more slowly than expected in April, which nevertheless suggested the UK economy was faring better than the euro zone. The details also showed firms' optimism rose to a two-year high and hiring picked up pace. The euro fell as low as 81.03 pence, its weakest level since June 2010, before recovering slightly to 81.26 pence, with traders saying it was propped up by bids ahead of a reported options barrier at 81.00 pence. Further gains would see the common currency target its 2010 low of 80.67 pence, beyond which would mark its lowest since November 2008. "It remains the case that there appears to be underlying demand for the pound which isn't shaken by domestic economic factors," said Michael Derks, chief strategist at FXPro. "There is still a general distrust of the euro, and the pound is benefiting from that through investor appetite for UK assets, especially gilts and central London property." Derks said he expected sterling to reach 80 pence per euro by the end of the second quarter. The euro was helped off its lows after the European Central Bank left interest rates on hold and its president Mario Draghi said the euro zone was set to recover this year and dampened expectations of more policy easing. SERVICES ACTIVITY FALLS The UK services purchasing managers' index fell to 53.3 in April from 55.3 in March, below forecasts for a smaller drop to 54.2. It followed weaker manufacturing and construction PMI earlier this week. However, the sectors remained in expansionary territory and continued to suggest the UK economy is in better shape than the euro zone, with Wednesday's manufacturing PMI data for the region revealing a deeper-than-expected contraction. "The UK PMI surveys this week were encouraging and at least were above 50, whereas the euro zone PMIs are generally below 50", indicating a contraction, said Chris Turner, head of currency strategy at ING. He said that there were risks the euro could fall further next week due to the political uncertainty that could be created by weekend elections in France and Greece. Against a trade-weighted basket of currencies, sterling was at 83.4, according to Bank of England data, close to its recent 32-month high of 83.6. Sterling has performed well since Bank of England minutes for April suggested chances were lessening that the central bank will opt for more asset purchases under its quantitative easing programme, given policymakers' concerns about high inflation. BoE governor Mervyn King echoed that tone in an interview with BBC radio on Thursday, saying inflation was still too high and that the economy looked set to recover slowly this year after a weak start. Economic concerns remained, however. A survey by mortgage lender Nationwide on Thursday showed British house prices fell in April by 0.2 percent, confounding expectations for a 0.5 percent rise. Against the dollar sterling was down 0.1 percent at $1.6181, well below an 8-month high of $1.6304 hit on Monday, with analysts saying $1.63 was likely to prove a stiff hurdle. Below $1.6153 would mark a one-week low and traders reported talk of stop loss sell orders below $1.6150. Local elections take place in Britain on Thursday where voters may voice discontent with the current Conservative-led coalition government and its austerity measures designed to bring down the country's deficit. (Editing by John Stonestreet)

Source