(Updates with fresh lows, M&G property fund freeze)
By Jemima Kelly and Anirban Nag
LONDON, July 5 (Reuters) - Sterling slumped 2 percent to hita 31-year low against the dollar and a 2-1/2-year trough againstthe euro on Tuesday as investors worried about the economic andfinancial fallout of Britain's vote to leave the European Union.
The pound, which has borne the brunt of market concern aboutthe economic impact of the vote, fell to $1.3022, itslowest since September 1985. That left it 13 percent below itslevels before the June 23 referendum.
Sterling also fell against the euro to 85.48 pence per euro,its lowest level since late 2013. And against theBank of England's trade-weighted basket of currencies, sterlingfell to its weakest in more than three years.
The pound's losses accelerated after Aviva Investors, thefund arm of insurer Aviva, suspended its UK PropertyTrust with immediate effect. M&G, the fund management arm ofinsurer Prudential, also suspended trading in its 4.4billion pound UK property portfolio and feeder fund.
On Monday, Standard Life Investments, the fund arm ofinsurer Standard Life, suspended its 2.9 billion pound UKreal estate fund.
These suspensions raised concerns about whether foreigninvestors would pull out of UK's commercial property sector inlarge numbers, putting the currency under more pressure.
"The last time we saw this kind of action was in thefinancial crisis," said Mark Priest, head of index and equitymarket making at ETX Capital.
"Fears about the investment industry are leaching into theforex markets today, with sterling seeing heavy selling againafter a few days of relative calm."
Sterling briefly trimmed losses after Bank of EnglandGovernor Mark Carney, speaking after publication of the Bank'ssemi-annual Financial Stability Report, said the fall in thecurrency should help ease the balance of payments shortfall.
"One of the most striking things for us is the fact that he(Carney) spoke quite openly about the need for sterling toadjust to act as a stabiliser, and that its weakness wasnecessary ... so that was actually a positive spin," said INGcurrency strategist Viraj Patel.
BOE CONCERNED
The BoE also expressed concern about a fall in investordemand for British assets -- which could make it harder for thecountry to finance its large current account deficit -- as wellas trouble in commercial real estate making it harder forbusinesses to use their property as collateral to obtain loans.
"Given that the UK's current account deficit was running ata clip of nearly 7 percent of GDP over the last few months,anything that slows capital inflows undermines the currency,"said John Hardy, head of currency strategy at Saxo Bank.
Earlier, a survey of Britain's services sector showeduncertainty in the run-up to the referendum had slowed growthlast month to a three-year low, and sent business expectationsto their weakest since 2012.
But RBC Capital Markets currency strategist Adam Cole saidthe survey had virtually no impact on the currency, andinvestors would only be able to see the real effect on businessconfidence in July.
Analysts said with economy likely to slip into a recession,a rate cut is likely in coming months. Investors are pricing ina 25 basis point rate cut in August. (Editing by Jeremy Gaunt and Janet Lawrence)
