* BoE on hold, but expectations strong for more easing * Soft UK data keeps sterling under pressure FREE GUIDES AND REPORTS FROM DIANOMIADVERTISEMENT October Stock Tips Which Stocks are Set to Soar? Download FREE Report * ECB keeps rates steady, Spain in focus By Anirban Nag LONDON, Oct 4 (Reuters) - Sterling fell to its lowest in two weeks against the euro on Thursday as soft UK data kept alive the prospects of more monetary stimulus in the coming months. The Bank of England kept interest rates on hold and its quantitative easing programme unchanged at the end of a two-day meeting on Thursday, but expectations are growing that it may have to ease policy as early as next month as the economy falters. "People were expecting policy on hold with the focus now shifting to the next month," said Craig Erlam, market analyst at Alpari. "We expect the pound to come under pressure as there are plenty of expectations that the BoE could do more asset purchases next month." More bond buying or quantitative easing is usually negative for the currency as it increases the supply. The European Central Bank also kept rates unchanged, with the euro buoyed by expectations Spain will soon need to seek a bailout. The single currency rose to 80.43 pence, its highest level since Sept. 20 and up 0.1 percent on the day. Near-term resistance is seen at its Sept. 20 high of 80.45 pence with offers cited above 80.50 pence. The euro was also higher against most other major currencies, helped by the ECB's decision to keep interest rates stable rather than cutting them. Sterling inched up against the dollar after the BoE kept rates and its quantitative easing programme on hold. The pound was up 0.3 percent at $1.6120 with offers from sovereign investors cited at around $1.6140. It recovered from a three-week low against the dollar struck on Wednesday, but is likely to struggle as the economy continues to flag. STRUGGLING CURRENCY Britain's economy shrank by 0.7 percent in the second quarter of 2012, extending a recession that started late last year as output wilted under the pressure of government austerity and the euro zone debt crisis. Sterling has come under pressure against the single currency as softer-than-expected economic data this week highlighted the fragility of the UK economy. A composite of this week's data releases suggested the UK economy grew only marginally in the third quarter with construction sector activity still contracting and the dominant services sector growing at a much slower pace than anticipated. Data on Thursday pointed to more weakness. Mortgage lender Halifax said British house prices dropped 0.4 percent in September after a bigger than initially estimated 0.5 percent fall in August, leaving prices in the third quarter of 2012 1.2 percent lower than a year earlier.. "We think there is still some bounce left in euro/sterling," said Richard Driver, currency strategist at Caxton FX. "UK data in the past week has been disappointing. That will keep sterling under pressure while any move by Spain to seek a bailout will help the euro in the short term."

Source