WRAPUP 2-Interest rate cut bets knock pound to 13-year low

* Trade-weighted sterling hits lowest in nearly 13 years

* UK service sector PMI falls to record low of 40.1 in Nov

* Money markets fully pricing in 100 bp UK rate cut Thurs

(Updates prices, adds quotes)

By Jessica Mortimer and Christina Fincher

LONDON, Dec 3 (Reuters) - Sterling hit its lowest level in almost 13 years on Wednesday as another batch of dire economic data convinced investors that the Bank of England would slash interest rates to prevent a recession turning into a slump.

The floundering pound fell to 80.4 on a trade-weighted basis GBP=, its weakest since January 1996, after data showed Britain's dominant services sector contracted last month at its fastest pace since records began more than a decade ago.

Sterling has now fallen 17.5 percent on the trade-weighted index since the start of the year.

Wednesday's figures on the service sector followed surveys earlier this week showing the country's manufacturing and construction sectors are also in sharp decline.

Economists said the pace of deterioration in Britain's economy and a sharp drop in price pressures gave the central bank ample room to follow up last month's stunning 150 basis point cut with another sharp reduction -- probably of 100 basis points on Thursday.

Such a move would take UK interest rates to 2 percent, their lowest level since 1951. Interest rates have never fallen below 2 percent since the Bank of England was created in 1694.

"A 100 basis point cut is now priced in across all markets," Deutsche Bank economist George Buckley said.

"There is a risk that they will do more and it would be very disappointing if they did less," he said, adding: "All these PMI figures are consistent with a sizeable drop in GDP."

Interbank markets suggest banks remain extremely reluctant to lend, despite a taxpayer-backed recapitalisation package.

By 1537 GMT, the pound had fallen 0.8 percent on the day to $1.4783 GBP=, while the euro strengthened to a session high of 86.07 pence -- closing in on last month's record high of 86.62 pence EURGBP=.

"The pound has been performing relatively poorly compared with other currencies, and the key to that is the Bank of England policy outlook," Standard Chartered currency strategist Rob Minikin said.