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Sterling at 5-mth low vs euro on weak housing data

* Sterling hits 5-mth low vs euro, 4-mth trade-weighted low

* Weak Halifax housing data, prospect of more QE weigh

* UK industrial output data awaited at 0830 GMT

LONDON, Oct 7 (Reuters) - Sterling slid to a five-month low against the euro on Thursday after data showing a sharp fall in UK house prices heightened speculation the Bank of England might ease monetary policy further.

Worries about a slowing UK economic recovery increased as mortgage lender Halifax said British house prices plunged a record 3.6 percent in September, well below forecasts for a fall of just 0.2 percent. [ID:nLAC005771]

The data was enough to push sterling into negative territory against an otherwise weaker dollar, while the pound also hit a four-month low on a trade-weighted basis.

“Halifax was worse than expected and there have been small sterling sellers as a result,” a London-based trader said.

The Bank of England is scheduled to announce its latest policy decision at 1100 GMT. No change is expected to either interest rates or its quantitative easing target, but investors are concerned about a possible three-way split on whether economic conditions justify tighter or looser policy. [ID:nLDE6951BM]

Ahead of that, manufacturing and industrial production data for September is released at 0830 GMT, with output growth forecast to slow slightly. Weak data could extend sterling's falls, analysts said. ECONGB

At 0731 GMT, the euro EURGBP=D4 was up 0.3 percent at 87.96 pence, having hit a five-month high of 88.05 pence.

Falls versus the euro pushed sterling's trade-weighted index =GBP down to 79.5, its weakest since early June, while the pound was down 0.1 percent against the dollar GBP=D4 at $1.5881.

“The $1.60 level is providing very strong resistance, which reflects concerns about the prospects of weaker growth in the third and fourth quarters and the prospects of more QE,” said Geraldine Concagh, economist at AIB Group Treasury in Dublin.

Monetary Policy Committee member Adam Posen has advocated more quantitative easing to boost a weakening economy, while another policymaker, Andrew Sentance, has been a lone voice calling for a rate hike given high inflation.

No accompanying statement is expected from the BoE if it makes no changes to policy.

Analysts said a report in the Financial Times that Britain’s coalition government could delay some of its planned public spending cuts until later in its five-year parliamentary term was also weighing on sterling sentiment. [ID:nLDE6960CH]

A UK Treasury official, however, said no political decision has been made to push back its spending cuts programme, but administrative hurdles could lead to some slippage at the margins.

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