* Sterling falls to $1.6195 vs dollar, lowest since August 12 * UK manufacturing PMI shrinks in August, adds to economic worry * Pound gains versus euro which slides after series of weak data By Neal Armstrong LONDON, Sept 1 (Reuters) - Sterling slipped to a three-week low versus the dollar on Thursday after a survey showed British manufacturing activity shrank in August, and the gloomy economic picture left the pound vulnerable to further losses. Sterling did manage to make slight gains versus the euro, which fell after a series of weak manufacturing surveys in the euro zone. British manufacturing activity shrank at its fastest pace in more than two years in August, hurt by a sharp drop in demand for exports, data showed on Thursday, in a further sign that Britain's economic recovery is stalling. The survey fell to the weakest level since June 2009 and for the second straight month was below the 50 line separating contraction from expansion, though it was slightly better than forecasts for a reading of 48.6. "I don't think it's suggesting the picture has changed significantly from a month ago. I don't think anybody (on the Bank of England Monetary Policy Committee) would be changing their vote on the back of this number, but it does suggest that growth in Q3 will be fairly subdued," said Ross Walker, economist at RBS. Sterling initially bounced against the dollar to $1.6230 as the data was not as bad as economists had feared, but it soon fell back to hit a session low of $1.6195, its lowest level since Aug. 12, trading down 0.3 percent on the day. Traders said stop-losses were triggered on the break of $1.6200, while key support was at $1.6111, the August low. A negative day for European stocks was giving the dollar a general boost, they said. "We generally dislike sterling as forward-looking indicators have started to deteriorate," said Kiran Kowshik, currency strategist at BNP Paribas. "Growth looks to be slowing and there are signs that the market doesn't feel the government's fiscal strategy will be credible in the long run." The pound took a knock in early European dealing after the release of soft Nationwide housing data. Data released overnight showed Britain's economy will grow more slowly this year and next than had been expected just three months ago, due to a disappointing start to the year and worsening global prospects, the British Chambers of Commerce (BCC) said on Thursday. The BCC cut its forecast for GDP growth this year to 1.1 percent from 1.3 percent in its June quarterly forecasts, and to 2.1 percent for 2012, from 2.2 percent. A string of disappointing data and worries over the impact of fiscal cuts has fuelled expectations that UK interest rates will be left at record lows until the end of 2012 . There have also been increasing calls for more central bank asset purchases to try to stimulate economic growth, with concerns over the world economy adding to the deteriorating picture. The euro was down 0.3 percent against sterling at 88.12 pence after surveys showed manufacturing in Italy and France contracted in August, while activity in Germany's manufacturing sector was weaker than expected. Traders said a UK clearer was the main seller of euro/sterling in the morning, though the euro remained within sight of last month's high of 88.87 pence . (Editing by Susan Fenton)

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