Sterling dips vs dollar on bank shake-up; BoE eyed

* Stg dips vs dollar on UK banking shake-up, but off lows

* UK banking shares fall, highlighting sector concerns

* BoE seen increasing QE on Thursday

* But traders say talk of Kraft bid for Cadbury supports

By Jessica Mortimer

LONDON, Nov 3 (Reuters) - Sterling dipped against the dollar on Tuesday after the UK Treasury announced a major shake-up of British banks and investors braced for a possible extension of asset purchases by the Bank of England this week.

The pound rose against a broadly weaker euro, however, and pared some of its earlier losses against the dollar on speculation of sterling-positive M&A activity.

Some traders said speculation Kraft Foods Inc (KFT.N) could announce a fresh offer for Cadbury (CBRY.L) with its earnings report later on Tuesday [ID:nN02445498] supported the currency.