UPDATE 1-Record KOF jumps shows Swiss economy on the mend

* KOF indicator rises to 0.85, highest since July 2008

* KOF says signals positive y/y GDP growth in Q4

* KOF says all sectors showing improvement

* Swiss franc ticks up vs euro after KOF

(Adds details, analysts, franc)

ZURICH, Sept 30 (Reuters) - The recovery of the Swiss economy from the deepest recession in decades looks set to gain traction, a record jump in the country's leading growth barometer KOF in September showed on Wednesday.

The surprisingly sharp rise in the barometer supported the Swiss franc and economists said that each set of positive data increased the chance that the Swiss National Bank may exit its ultra-loose policy earlier than so far assumed.

The KOF leading indicator soared to 0.85 from a -0.04 in August, the KOF Swiss Economic Institute said in a statement, turning positive for the first time since October 2008 and hitting its highest level since July 2008.

"Toward the end of the year, the year-on-year growth rate of Swiss GDP could return into positive territory," the KOF said.

Signs have been mounting recently that Switzerland is moving out of the deep recession, which it slipped into in mid-2008 as the global slump hit its exporters hard.

The KOF said that all sub-indicators, including the ones for banks, manufacturers and for exports improved in September.

The KOF data supported the franc, which traded 0.2 percent higher on the day against the euro at 1.5084 per euro, moving closer to levels where trader see the risk of a central bank intervention. EURCHF=

SUSTAINABLE RECOVERY

The Swiss National Bank forecast an economic decline of between 1.5 and 2.0 percent this year, potentially the worst drop since 1975.

The SNB and the Swiss government see the country returning to economic growth next year. Both have warned against the risks of a backlash, however, and the central bank has kept its ultra-loose monetary policy in place.

"We see a rate hike in the third quarter 2010," UBS analyst Reto Huenerwadel said. "With every strong set of economic data, the risks of an earlier move rises, though we think they would need a very good reason to move ahead of the ECB."

Interest rate futures are pricing in a rise of the SNB's target for the 3-month Swiss franc LIBOR to 0.75 percent by the end of 2010 from the current low of 0.25 percent.<0#FES:>

Huenerwadel said the SNB was likely to wait with a rate hike and an exit from its unconventional measures, which include currency intervention to fight a rise in the franc, until the recovery reached the labour market.

Unemployment has risen in recent months to its highest since the mid-90s and some pessimistic forecasters like the KOF institute expect a further increase in the unemployment rate to record levels near 6 percent.

On Wednesday, Swiss specialty chemicals company Sika (SIK.S) said it would cut another 50 jobs to adjust to lower demand and unfavourable currency conditions.

Swiss exporters have been suffering from the rise of the Swiss franc throughout the crisis despite the SNB's efforts to stem the currency's appreciation against the euro. (Reporting by Sven Egenter; Editing by Andy Bruce and Toby Chopra)