By Jemima Kelly
LONDON, July 5 (Reuters) - Sterling hit a 2-1/2-year lowagainst the euro and traded less than a quarter-cent above a31-year low against the dollar in risk-averse markets onTuesday, as investors worried about the economic and financialfallout of Britain's vote to leave the EU.
Standard Life Investments said late on Monday that it hadsuspended all trading in its UK real estate fund, one ofBritain's largest property funds, in one of the first signs ofmajor financial stress following the results of the June 23referendum.
The investment house, part of the insurer Standard Life, said the decision had been taken after an increase inredemption requests due to uncertainty following the vote. Ithad said last week that it had reduced the value of the fund,which invests in UK commercial real estate assets, by 5 percent.
The announcement came after the end of trading in London onMonday and, with trade thinned by the closure of U.S. marketsfor the Independence Day holiday, Tuesday was traders' firstproper chance to react to the news.
Sterling shed more than 1 percent to trade at $1.3145, its weakest since last Monday, when it tumbled to$1.3122, its lowest since 1985, after a record-breaking two-dayfall of more than 11 percent.
Against the euro, the pound also skidded by 1 percent to84.86 pence, its weakest since late October 2013.
"Risk does seem to be under some pressure today - the newsthat Standard Life is suspending trading in its commercialproperty fund is having some impact for sure, and that'scontributing to the generally weaker tone in risk sentiment,"said Societe Generale currency strategist Alvin Tan.
A survey of purchasing managers from Britain's dominantservices sector for June, which should capture some of theimmediate reaction to the Brexit vote, is due at 0830 GMT.
Some investors are anxious that the number could be veryweak following Monday's data showing the construction industrysuffered its worst contraction in seven years.
"The pound remains under downward pressure in the near term,undermined by building concerns that the UK economy is slowingsharply following the Brexit vote," wrote Bank ofTokyo-Mitsubishi UFJ currency economist Lee Hardman in aresearch note.
"The extent and speed of the downturn (in the constructionsector) in the face of political and economic uncertainty is aclear warning flag for the wider post-Brexit economic outlook."
The Bank of England will publish its semi-annual FinancialStability Report later in the morning, which analysts said wouldbe an opportunity for the bank to reiterate its ability tomanage the financial system in the aftermath of the Brexit vote,but should not affect the pound much.
British finance minister George Osborne will also meet headsof major banks on Tuesday to discuss how the country shouldrespond to the decision to leave the European Union. (Reporting by Jemima Kelly; Editing by Kevin Liffey)
