Sept 23 (Reuters) - Sterling dipped against the dollar

on Monday but touched a new two-year high versus the euro as

business activity readings pointed to diverging economic cycles

in the British and euro zone economies.

The pound slipped 0.2% to $1.3298, hovering below a

more than two-year high it touched against the dollar on Friday.

British businesses reported a slowdown in growth this month,

according to a survey on Monday that also showed waning price

pressures, potentially encouraging the Bank of England (BoE) to

consider cutting rates again.

The preliminary estimate of the UK S&P Global Composite

Purchasing Managers' Index (PMI) fell to 52.9 in September,

below economists' forecast of 53.5 but still well above the 50

level that separates growth from contraction.

Sterling, however, gained ground against the euro.

Euro/sterling slid 0.3% to 83.59 pence - its weakest

since August, 2022.

A similar survey showed euro zone PMIs sank to 48.9 this

month from August's 51.0, with Germany's decline deepening and

France returning to contraction following a boost in August due

to the Olympic Games.

Market pricing showed traders are betting on 44 bps more of

rate cuts from the European Central Bank by the end of the year,

and 40 bps of easing from the BoE.

The ECB has cut rates twice this year, while the BoE has

reduced rates just once. The central bank last week kept rates

at 5.0%, saying it would be careful about future cuts. Signs of

economic resilience and sticky service sector prices have aided

expectations that the BoE need not be aggressive in monetary

policy easing compared to other major central banks.

"Over the past two years, no G10 economy has seen its data

outperform expectations as much as the UK and together with high

real rates the currency remains in a sweet spot," FX strategists

at Deustche Bank said in a note.

British finance minister Rachel Reeves said there would be

no return to austerity or widespread cuts, promising long-term

growth despite previous warnings of a tough budget to fix the

foundations of the economy.

Reeves previously suggested taxes were likely to rise in her

first budget on Oct. 30 because of what she said was a 22

billion-pound ($29 billion) hole in the public finances.