* Sterling down 0.1 pct vs dollar * Manufacturing PMI in focus as econ worries persist Feb 1 (Reuters) - Sterling recoiled from a two-and-a-half-month high against the dollar on Wednesday, as risk appetite waned and investors awaited fresh evidence of how the UK economy was performing in the first quarter of this year. UK data so far has shown the economy is on the brink of a recession and the Bank of England is likely to step up its asset purchase programme next month to support the economy. But forecasts are for January's UK manufacturing Purchasing Managers' Index (PMI) to rise to 50.0 from 49.6.. A higher-than-expected number could provide support to the British pound while a weak number will undermine the currency and cement the case for more quantitative easing. Sterling was down 0.1 percent at $1.5740, off a 2-1/2 month high of $1.5797 struck on Tuesday, with traders citing steady buying from an Asian central bank supporting in early London trade. It was flat against the euro, with the common currency trading at 83.05 pence. Traders cited solid bids at 82.65 which could provide near term support. "A strong PMI data could support sterling, although it will do little to expectations of more QE," said Jane Foley, senior currency analyst at Rabobank. "It certainly will not be a game changer but a strong number could indicate that the UK may avoid recession and that could see euro/sterling trade with a weak bias and move towards 80 pence." Investors have grown bearish about the euro's prospects with Greek debt swap talks dragging on and many now taking aim at Portugal which could be headed towards another bailout package. Add to that tough austerity measures are likely to see the euro zone economy underperform in coming months. That will be bad news for the UK too, given its proximity to the euro zone but investors perceive the country to a safe-haven in the maelstrom of the sovereign debt crisis engulfing the region. Investors, including foreigners have bought UK gilts, providing sterling with some support. Still, many analysts consider the British currency to be a sell at higher levels as the BOE prepares to expand its balance sheet by announcing another round of quantitative easing under its asset purchasing programme in February. Data on Wednesday showed British house prices unexpectedly fell for the second month in a row in January, due to the prospect of greater unemployment and buyers' problems setting aside funds to make mortgage deposits.. That came a day after numbers highlighted sharp declines in money supply and consumer credit, all of which backed the case for more monetary stimulus. And there was little respite likely. "This morning's manufacturing PMI will indicate neither a contraction nor an expansion but merely a flatlining of activity," Commerzbank Peter Kinsella said. "Key levels on the upside (for euro/sterling) remain in the 83.20 pence region and on the downside we continue to target the August 2010 low around 81.40 for profit taking on short euro-sterling positions." (Editing by)

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