Sterling falls on weak housing data

* Sterling down 0.4 pct vs dollar GBP=D4

* Nationwide housing data adds to fears over UK slowdown

* UK construction PMI for August due at 0830 GMT

By Neal Armstrong

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

British house prices fell much faster than expected last month but further declines are likely to be modest, mortgage lender Nationwide said on Thursday.

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

A UK purchasing managers' survey came in sharply lower than expectations on Wednesday, raising concerns the UK economy could struggle in the coming months, dampening recovery hopes which had been fuelled by an upward revision to UK growth the previous week.

"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."

At 0730 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.

Technical analysts highlighted key support 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 around 0.2 percent versus sterling to 83.05 pence, close to a 3-week high hit on Wednesday at 83.28.

UK construction PMI for August is set for release at 0830 GMT.

"We expect the headline activity index to fall to 53.0, from 54.1 in July, a little below the consensus forecast of 53.2," said analysts at Barclays in a note to clients.