Sterling hits near 7-mth low vs euro on UK QE risk

* Sterling at nr 7-mth low vs euro, 5-mth trade-weighted low

* Possible fresh monetary stimulus continues to weigh

* Weak Q3 GDP data on Tues may increase chances of more QE

* Pound up vs broadly weak dollar; hits 20-month low vs yen

By Jessica Mortimer

LONDON, Oct 25 (Reuters) - Sterling fell to its lowest in nearly seven months against the euro on Monday, dented by the possibility of more monetary easing from the Bank of England, though it gained against a broadly weaker dollar.

Sharp falls against the euro and other major currencies pushed sterling to its weakest in five months against a currency basket, with investors wary ahead of UK third quarter gross domestic product data due on Tuesday. ECONGB [ID:nLDE69L1TP]

Economists expect Britain's economy expanded by 0.4 percent between July and September, only a third of the 1.2 percent recorded the previous quarter. A weak figure would be seen as increasing the chances the BoE will opt for a new bout of quantitative easing.

The pound gained versus the dollar, however, as investors saw a Group of 20 agreement to shun competitive currency devaluations as a green light to resume dollar selling on expectations of more Federal Reserve monetary easing next week.

"The market is gunning for the dollar going into the Fed meeting, but it's not all good for sterling and the easiest way to express a bearish view on sterling is against the euro," said Paul Mackel, currency strategist at HSBC.

"The GDP data is the main focus for sterling this week and if it disappoints the market will factor in a higher probability of more QE".

The euro rose as high as 89.41 pence EURGBP=D4, its strongest since the end of March, though traders said it could face tough resistance before it breaches the psychologically key 90.00 pence mark. At 0818 GMT it was up 0.4 percent at 89.23 pence.

Falls against the euro pushed trade-weighted sterling down to 78.3 =GBP, its weakest since late May and leaving it set to target the May low of 77.8.

Sterling also fell to a 20-month low against the yen of 126.47 yen GBPJPY=R and dropped to its lowest in more than two decades against an outperforming Australian dollar GBPAUD=R at A$1.5786.

Against the dollar, sterling was up 0.3 percent at $1.5734 GBP=D4.

Sterling has underperformed most currencies other than the dollar since BoE minutes last week showed one policymaker, Adam Posen, voted for an extension of quantitative easing.

Market participants were also wary that harsh public spending cuts announced by the UK finance minister last week may further hamper an already fragile economic recovery, further increasing the chances the UK will follow the U.S. in opting for more QE.

"Sterling (is) weakening with the U.S. dollar against the other majors. GDP tomorrow to have a big impact on market expectations of QE," Lloyds analysts said in a note.

British Bankers' Association data on Monday showed UK mortgage approvals fell to their lowest in 18 months in September. (Editing by Stephen Nisbet)