LONDON, Dec 24 (Reuters) - Sterling gained slightly against the euro on Tuesday as strong British mortgage data increased fears the housing market may be overheating, reinforcing expectations the Bank of England may raise rates sooner than previously expected.
Mortgages for home purchases rose to 45,044 in November, up from 43,315 in October, their highest level since December 2009, the British Bankers' Association said.
The pound was up 0.1 percent against the euro to trade at 83.66 pence by 1043 GMT.
Sterling was slightly weaker against the dollar, down 0.1 percent at $1.6353, with the U.S. currency supported by strong consumer spending data from the previous session.
British 10-year government bond yields were close to their highest level since mid-September, peaking at 2.994 percent.
The mortgage data followed a string of positive indicators released last week that pushed sterling to an intraday peak of $1.6483 on Friday, its highest level in over two years.
"Moving into year-end the pound looks like it's set to outperform alongside the robust recovery in the UK economy, which we think will put pressure on the Bank of England to raise its interest rate by the end of (2014) or early 2015," said Lee Hardman, a currency analyst at Bank of Tokyo-Mitsubishi.
"It looks like the Bank of England may be the first major central bank to raise rates."
The pound has risen from below $1.50 in July, lifted as the UK economy improved faster than many of its European peers.
"Even if the U.S. economy is outperforming the UK in relative terms, the 1/8Federal Reserve 3/8 remains more dovish than the Bank of England," Hardman said.