Sterling index touches its strongest since late 2008

(Updates price movements)

By Patrick Graham and Anirban Nag

LONDON, April 17 (Reuters) - Sterling touched its highest level since late 2008 against a basket of currencies on Thursday, also pushing past resistance around $1.6800 as it continued to ride on upbeat labour data that bode well for Britain's economic recovery.

After a 10 percent surge over 12 months on a trade-weighted basis, the pound had stalled in the past six weeks as doubts over the structure of improving economic growth crept in.

The return of real wage growth and another sharp fall in unemployment, reported on Wednesday, did much to ease those nerves and bolster expectations the Bank of England will have to raise interest rates in the first half of next year.

"To be honest I expect some profit taking into the holiday weekend but the broad picture for sterling is pretty constructive," said Peter Kinsella, a strategist with Commerzbank (Xetra: CBK100 - news) in London.

"For the past three months we've been stuck in a range on a trade-weighted basis and its only now that we're beginning to see the pound reach out higher."

Against a basket of currencies, half of which is its rate to the euro, sterling was set by the Bank of England at 86.5 at 0700 GMT, pushing past a high it bounced back off in February and March.

It gained a quarter of a percent against the dollar to $1.6835 - adding to gains on Wednesday after the labour and wage data came out - and rose slightly against the euro to 82.18 pence per euro.

Earlier in London the pound hit a 4-1/2 year high against the dollar of $1.6842, but some dealers said there was resistance to more gains above that level.

"There is an argument that inflation is muted and that will allow the Bank of England to hold off and not raise interest rates," Kinsella said.

"But the point really is that for an economy that's growing at 2.5-3 percent annually, rates of 0.5 percent are just not appropriate and the bank will have to raise them."

The dollar's weakness came mainly on the back of comments from U.S. Federal Reserve chief Janet Yellen, read by the market as somewhat less bullish about the central bank's drive to rein in monetary stimulus and eventually raise interest rates.

Expectations the BoE (Shenzhen: 000725.SZ - news) will have to move in the first half of next year also contrast with the European Central Bank, which has been inching closely to outright money printing to support the euro zone economy.

"The pound's uptrend is intact," analysts from South African bank Investec (LSE: INVP.L - news) said in a morning note to clients. "With the pound still on a charge, any easing of policy by the ECB next month could likely see it print new highs on the year against the euro." (Editing by Susan Fenton)