LONDON, Oct 1 (Reuters) - Sterling slipped on Monday, falling from two-month highs against the dollar earlier, as investors sold the pound after British mortgage withdrawals for house purchases fell in August to their lowest since April.

The numbers suggested that recent interest rate hikes and increasing pressures on affordability have taken their toll on the housing market, further raising chances of a Bank of England easing this year.

Data on Friday showed mortgage approvals -- a leading indicator of the strength of the housing market -- fell to 109,000 in August from an unrevised 115,000 in July. This was the lowest since April's 108,000 and below the consensus forecast of 110,000. See [nBOE001192].

"The data on mortgage approvals was weak and that had an impact on sterling," said Lee Ferridge, currency strategist, at Rabobank.


"Everybody's looking at the housing sector. With the weak numbers, the concern is that the Bank of England may bring forward its rate cut," he added.

A rate cut should narrow the yield on sterling-denominated assets compared with investments in other currencies, diminishing their appeal to global investors.

Still no one expects the BoE to cut interest rates at this Thursday's monetary policy meeting, although more and more analysts have priced in at least one rate cut before year-end amid troubles at distressed mortgage lender Northern Rock.

By 1341 GMT, the pound fell 0.2 percent against the dollar to $2.0431 <GBP=>, after rising to $2.0493, its highest since July 27, according to Reuters data.  

Dollar weakness was the major driver behind sterling's gains earlier, as investors pushed the euro to another record high at $1.4281 <EUR=> for an eighth straight session, according to Reuters data.

Sterling was at 102.5 on the Bank of England's trade weighted basis <=GBP>, recovering from 14-month lows last week. Against the euro, sterling was little changed at 69.74 pence <EURGBP=>.

Earlier, a report on Sunday saying two U.S. hedge funds are interested in taking over Northern Rock had initially supported sterling, analysts said.

The Sunday Telegraph newspaper reported that the British Treasury has given two U.S. hedge funds permission to start takeover talks with Northern Rock.

But that support proved fleeting for sterling, as fresh concerns emerged about a firesale of Northern Rock's assets that would leave shareholders with virtually nothing.

Northern Rock as a result fell sharply on Monday, down 15.2 percent.

Source supplied by: Reuters