By Veronica Brown

LONDON (Reuters) - The pound hit two-year lows against a broadly stronger dollar on Monday, with stalled UK economic activity seen as another example of growing economic malaise outside the United States.

The pound's latest bout of weakness acted as a catalyst to help a recently revived dollar gain against other major rivals, including the euro. But trade was thin in Europe due to a UK public holiday.

Data on Friday showed the UK economy ground to a halt in the second quarter of the year -- its worst quarterly performance since 1992 -- highlighting the risk of a British recession and raising the chance of a UK interest rate cut later this year.

British interest rates are currently at 5 percent compared with a Fed Funds target rate of 2 percent, with expectations that UK rate will fall seen eroding the pound's yield advantage.

"The growth number confirmed our worst expectations. We've seen that the fall in house prices in the UK seem to have no end. We cannot detect this bottom in house prices that everyone seems to be looking for," said John Hydeskov, senior FX analyst at Danske bank in Copenhagen.

Hydeskov also said there was a speculative element to sterling's decline as highlighted by IMM data released late last week. He saw the pound falling further, to below $1.80.

By 1033 GMT, sterling was trading down 0.2 percent on the day at $1.8482, having fallen as low as $1.8407 in the global session -- its lowest since July 2006, according to Reuters data.

The dollar index, measuring the U.S. unit's value versus a basket of six major currencies, steadied at 76.803 .DXY.