Sterling stung by weak UK housing, building data

* Sterling hits 3-week low vs euro EURGBP=D4 of 83.47 pence

* Nationwide house prices post sharpest fall since February

* UK construction PMI adds to fears over UK slowdown (Adds quote, details. updates prices)

By Naomi Tajitsu

LONDON, Sept 2 (Reuters) - Sterling fell against the euro and the dollar on Thursday as weaker-than-forecast housing and construction data added to concerns that a fragile UK economic recovery could be running out of steam.

The pound hit a three-week low versus the euro after data showed growth in the UK construction sector slowed markedly in August, adding to the view the economic improvement seen in the first half of the year may not be sustainable. [ID: nLAH006786]

The pound's slide against the dollar below its 200-day moving average, considered a key technical level, also added to selling pressure on the currency.

Building society Nationwide said seasonally adjusted house prices dropped 0.9 percent in August after a 0.5 percent fall in July, much worse than the 0.2 percent decline economists had forecast and the sharpest drop since February. [ID:nSLA1KE6BC].

Analysts said increasing concerns about the UK economy were keeping the pound on the backfoot even as a slight improvement in risk appetite has supported other currencies considered to be higher risk.

"General sterling performance has been weak," said Michael Derks, chief strategist at FXPro.

"There's been some sterling-adverse flows from late last month, as well as negative UK data, like falling house prices. There's also worries that fiscal austerity measures will hurt the economy."

At 1510 GMT, sterling was trading down around 0.4 percent versus the dollar GBP=D4 at $1.5390, breaking below its 200-day moving average at $1.5428. Traders cited selling demand around $1.5430.

The euro rose to a three-week high at 83.39 pence. EURGBP=D4, with the technical outlook turning bullish for the single currency.

GERMAN BANK SELLING

Market participants said sterling sentiment was souring as the pound has been unable to make a decisive recovery against the dollar after sliding under its 200-day moving average on an intraday basis this week.

The pound reversed its climb to $1.5492 on Wednesday when upbeat data in the U.S., China and Australia helped lure investors away from safe-haven currencies and assets.

Traders said a German bank was the standout seller of sterling. They also said speculative traders holding short positions had placed stop-losses just above $1.5500.

Technical analysts also highlighted key support for the pound at $1.5322, the 38.2 percent retracement of the May to August rally, just below Tuesday's five-week low of $1.5327.

Thursday's weak figures followed worse-than-expected data on the UK manufacturing sector, which has raised concerns the economy could struggle in coming months, dampening recovery hopes which had been fuelled by an upward revision to UK growth the previous week.

"Sterling is in a vulnerable position," said Ian Stannard, senior currency strategist at BNP Paribas.

"It's been supported against the dollar by a fragile rebound in equities this week, but I am cautious to the sustainability of any sterling rebounds." (Additional reporting by Neal Armstrong; editing by Andy Bruce)