Sterling falls to two-week low versus dollar before PMI data
* UK manufacturing PMI in focus, due 0928 GMT
* Sterling hits two-week low vs dollar
* May extend falls if PMI comes in below expectations
* Pound seen firm versus weak euro, hits two-week high
By Jessica Mortimer
LONDON, Nov 1 (Reuters) - Sterling fell to a two-week low against the dollar before a UK manufacturing activity survey that could trigger doubts about whether the recent pace of economic recovery can be sustained.
However, the pound rose further against a broadly weak euro, which fell as a slowdown in inflation prompted speculation the European Central Bank act to boost the economy.
Sterling fell 0.3 percent to $1.5987, its weakest since Oct (KOSDAQ: 039200.KQ - news) . 17.
The UK manufacturing purchasing managers' index for October is expected to have dropped to 56.1 from 56.7 in September. Analysts said anything weaker than this could push the pound lower against the dollar.
"A PMI reading of 55-56 would still be quite good compared to the last three years. It could be an excuse to take some profit on sterling/dollar positions but it wouldn't cause a big move," said Kathleen Brooks, research director at FOREX.com.
She said the pound may be more vulnerable to broad dollar strength after Wednesday's Federal Reserve statement was interpreted as leaving open the option of scaling back monetary stimulus as soon as December.
Analysts at Morgan Stanley (Xetra: 885836 - news) said a weak PMI number could open the potential for a move towards $1.5860.
Against the euro, however, the pound was expected to remain firm.
Data on Thursday showed euro zone annual inflation dropped to a four-year low of 0.7 percent in October, well below the ECB's target of just below 2 percent and expectations the ECB would loosen monetary policy firmed as a result.
The euro was last down 0.1 percent at 84.55 pence, having hit a two-week low of 84.505 pence.
Recent UK data has been mixed. Surveys on Wednesday showed consumer confidence fell in October for the first time in six months, although other figures showed house prices rising at their fastest rate in three years.