Sterling hit by softer housing, construction data

* Sterling hits 3-week low vs euro EURGBP=D4 of 83.39 pence

* Nationwide house prices post sharpest fall since February

* UK construction PMI adds to fears over UK slowdown (Adds quote, detail)

By Neal Armstrong

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

Growth in Britain's construction sector slowed markedly in August, a survey of purchasing managers showed on Thursday, led by a loss of momentum in residential construction. [ID: nLAH006786].

"Those who are looking for signs of a slowdown will find plenty to worry about in this month's construction PMI," said CIPS chief executive David Noble.

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].

"The housing market data is a good leading indicator and points to a slowdown on the UK economy," said Ian Stannard, senior currency strategist at BNP Paribas.

"Sterling is in a vulnerable position. 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."

A UK purchasing managers' survey also came in sharply lower than expectations on Wednesday, raising 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.

At 1005 GMT, sterling was trading down around 0.4 percent versus the dollar GBP=D4 at $1.5390, having risen as high as $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 highlighted key support for the pound at $1.5322, the 38.2 percent retracement of the May to August rally, just below Tuesday's 5-week low of $1.5327.

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

"We are sticking with the uptrend, expecting a probe into the 83.40/65 area or even a return to 84.00. A move back below 82.25 is needed to alleviate bullish risks," said Barclays analysts in a note to clients.

(Editing by Patrick Graham)