Sterling sinks to two-week low against rallying dollar

* Sterling hits 2-week low vs dollar after U.S. wage data

* Pound posts fourth straight month of losses vs greenback

* Struggling euro hits 4-week low vs sterling

By Liisa Tuhkanen

LONDON, Oct 31 (Reuters) - Sterling hit a fresh two-week low against the dollar on Friday after data showed U.S. wages picking up, leaving the pound on track for its fourth straight month of losses - its weakest run since 2009.

The U.S. currency was sent rallying on Wednesday after the Federal Reserve sounded a slightly less dovish than expected tone in its latest policy statement.

The greenback gained further on Friday after the Bank of Japan shocked financial markets by unleashing a fresh round of quantitative easing in a pre-emptive bid to see off deflation in the world's third-largest economy.

Sterling fell to as low as $1.5943 after the release of the U.S. data, which showed wages recording their biggest increase in over six years in the third quarter.

The pound later recovered some ground and was last trading at $1.5988, flat on the day, but was on track to finish October 1.3 percent lower than where it started.

Sterling has struggled all week as Bank of England policymakers have emphasised that interest rates would stay at their record low level for longer than previously thought.

"Sterling specifically has some issues which really come down to little more than the fact that the date when the BoE is likely to hike rates just keeps being pushed further and further back," Simon Derrick, head of currency research at Bank of New York Mellon, said.

Sterling's losses against the dollar were relatively small compared with the greenback's gains against other currencies on Friday - the yen lost as much as 3 percent.

But they marked another day of a downward trend that started in mid-July, when sterling peaked at a six-year high on expectations that the BoE would start hiking interest rates by the end of this year.

Those bets have since been pushed well back, with many now not expecting rates to rise until the second half of 2015. . RBC Capital Markets has postponed its expectations for a first BoE rate hike to June 2015, from February 2015 previously.

EURO WEAKER

The pound climbed 0.6 percent against the euro, which was trading at 78.325 pence, its weakest since early October.

Earlier in the day, German retail sales posted their biggest monthly fall in more than seven years, adding to worries about Europe's largest economy, though inflation in the euro zone posted a slight increase in October.

"One of the things that you might argue was really pushed today was that here is the Bank of Japan making a bold move on monetary policy, and people were then looking at Europe and saying: look how long it takes the ECB to make a move," Derrick said.

"Perhaps this pushes the ECB to become a little more proactive."

British government bond prices fell modestly as investors shied away from safe-haven bonds and shifted into riskier assets like stocks, following the U.S. wage data.

At 1628 GMT, the 10-year gilt yield was up around 1.5 basis points on the day at 2.25 percent, having wavered between slight gains and losses through most of the trading session.

The yield spread between the 10-year gilt and the equivalent German Bund peaked during the session at 140.2 basis points - its highest level since Oct. 7. (Additional reporting by Jemima Kelly; Editing by Jon Boyle)