Sterling slides, pressured by weak UK bank shares

* Sterling hits day's low vs euro as RBS shares drop * Traders dump pound before BoE meeting later in the week * UK manufacturing PMI due at 0928 GMT

LONDON, Nov 2 (Reuters) - Sterling slipped on Monday, snapping a five-day winning streak against the euro as UK bank shares took a hit before an expected announcement by the government later in the week overhauling the banking sector.

Traders also sold the pound, putting the brakes on its rally from last week, as market participants awaited the outcome of the Bank of England policy meeting on Thursday, when the central bank may increase its quantitative easing program.

Investors were additionally looking to a reading of UK manufacturing PMI to see if the sector continues its slow recovery. Forecasts are for an October reading of 50.0, the level which separates growth from contraction, from 49.5 in September.

Ahead of the data, sterling was shaken by the looming announcement of a banking sector shake-up as the government finalises plans to carve up rescued banks Royal Bank of Scotland (RBS.L: Quote, Profile, Research) and Lloyds (LLOY.L: Quote, Profile, Research). [ID:nL1174390]

The UK currency is sensitive to news about the nation's struggling banking system given the economy's heavy dependence on its financial sector.

"The strong correlation between the UK financial system and sterling continues," said Neil Jones, head of European hedge fund sales at Mizuho in London.

"UK first-tier clearing banks are down sharply and sterling is being hit across the board."