TOKYO -- The dollar rose to a two-year high against sterling after data last week showing Britain's economy was stalling, raising the prospect for monetary easing by the Bank of England.

Britain's gross domestic product was revised to show it was unchanged in the second quarter from an initial estimate of 0.2 percent quarterly growth, the worst quarterly performance since the second quarter of 1992.

The British data added to the gloomy economic outlook in the euro zone, reinforcing views that the European Central Bank could lower interest rates in the coming months.

While the global economic slowdown and the outlook for monetary easing outside the United States was helping to support the dollar, traders remained sceptical about the dollar's sharp gains due to persistent worries about the US financial system.

In addition to problems at US mortgage finance companies Fannie Mae and Freddie Mac traders will also be watching a slew of US housing data due this week -- existing and new home sales and two surveys of nationwide house prices. "The market's near-term focus is sterling and oil, both of which could keep the dollar firm," said a senior dealer at a European bank.

"There is caution before this week's housing data, and that may keep the dollar's gains limited, but there's also no reason to actively sell the dollar," he said.

Sterling fell as low as $1.8415, its lowest since late July 2006. The fall in the pound also dragged the euro lower, with the single currency trading down 0.5 percent against the dollar at $1.4725.

Oil prices fell on Friday in the biggest one-day slide since 2004 on weakening global demand and rising supply, and the dollar's rebound reinforced its sell-off.

Comments by influential investor Warren Buffett that he has no bets against the dollar also added to the dollar's upward momentum.

The dollar's rise this month has been driven by players unwinding bets on the global economy weathering the US downturn and the credit crisis. In the process, investors have sold the euro, sterling, the Australian dollar and commodities.

The dollar inched up 0.1 percent against the yen to 110.21 with traders eyeing whether the dollar could rise above a seven-month high of 110.67 yen hit earlier this month, as Monday is one of the days of the month when Japan's commercial settlements are due.