Pound hits 1-1/2-month low vs dollar on economy view

LONDON (Reuters) - The pound hit a 1-1/2-month low against the dollar on Tuesday as investors continued to shun the currency on the view that the economy is deteriorating, while awaiting this week's decision on interest rates.

A run of weak economic data has helped keep the pound under selling pressure, and analysts said readings of services activity and industrial output later in the day may offer more signs of a slowing economy despite price risks.

"If we get a weak services number and a weaker-than-expected production and manufacturing figure that would be a nasty combination," said Marc Oswald, strategist at Monument Securities.

Forecasts are for the CIPS/Markit services PMI index to fall to 46.70 in July from 47.10 in June, which was its weakest since October 2001. Output is seen rising 0.1 percent on the month in June, after falling 0.8 percent in May.

The figures will follow a record-pace fall in construction activity announced on Monday, and a contraction in manufacturing activity reported late last week.

The pound was down 0.2 percent at $1.9585 by 8:40 a.m., having fallen as low as $1.9558 earlier in the day, its lowest since mid-June.

Market participants said that disappointing data readings would offer further evidence that the outlook for the economy is becoming more negative, which could spark more selling of the pound towards the key $1.95 level.

But sterling was supported against the euro, as the single currency fell to its weakest level against the dollar in more than a month.

The euro slipped around 0.2 percent to 79.25 pence, pulling back from a two-week high of 79.46 pence touched on Monday.