LONDON, Oct 11 (Reuters) - Sterling slipped to a 1-1/2-week low against a trade-weighted basket of currencies on Thursday after data showed UK house pricing falling at their fastest pace in 2 years, re-igniting talk of a UK interest rate cut.

Expectations of a UK rate cut cooled earlier this week after Bank of England Governor Mervyn King said Britain's economy would need to slow over the coming year to keep inflation risks at bay. Data from the Royal Institution of Chartered Surveyors on Thursday was the latest in a line of soft news from the Britain's housing market.

"Markets are trying to interpret the monetary policy outlook and if house prices are seen to be moving lower then that will be one piece of the jigsaw," said Jeremy Stretch, currency strategist at Rabobank.

"Though of course you have to put that in the context of Mr King's comments ... when he seemed to be suggesting no early rush to cut rates, but at least in the short term it might destabilise sentiment a bit."

By 0703 GMT, sterling was down 0.3 percent at $2.0370 <GBP=>. The euro rose as high as 69.66 pence, its strongest since Oct. 2 and closing in on 2-1/2 year peaks of 70.29 pence set in late September <EURGBP=>.

On the Bank of England's trade-weighted basis, sterling opened at 1-1/2 week low of 102.4 <=GBP>, down 0.4 percent on the day.

The RICS house price balance fell to a 2-year low of -14.6 in the three months to September from -3.3 in the three months to August. New home buyer enquiries fell at their fastest pace since March 2003.

Source supplied by: Reuters