(Reuters) - Sterling fell to a one-month low against the dollar on Tuesday after data showed a bigger-than-expected fall in manufacturing output and a deterioration in the trade deficit. This sparked concerns among investors that the UK economy may not recover in the third quarter as well as many had hoped following three consecutive quarters of contraction, leaving the pound vulnerable to more falls. Sterling fell 0.15 percent to $1.6001, its weakest since September 11. Further weakness could see it target the September 11 low of $1.5987, the September 10 low of $1.5960 and the 55-day moving average of $1.5905. The weak data also came after the International Monetary Funds slashed its forecasts to show the UK economy shrinking overall this year. "Everyone had been getting more comfortable with the UK but recently there has been a shift in sentiment. We have seen a gradual negative momentum building up in the past 10 days or so," said Audrey Childe-Freeman, head of foreign exchange strategy at BMO Capital Markets. Tuesday's weak data followed below-forecast purchasing managers' survey on private sector activity last week and will increase the chances of the Bank of England expanding asset purchases under its quantitative easing programme next month. Investors were also concerned a weak economy will mean the UK government will struggle to keep to its plans for cutting the deficit, which may raise the prospect of the UK may losing its prized AAA credit rating. "The question is does the UK come out of recession fast enough so that the fiscal path is not being questioned ... That's the most crucial factor for the longer-term outlook for sterling, the market is questioning it and that's why sterling is shaky," BMO's Childe-Freeman said. Following the release of the data, BMO said it is looking to enter a long position in the euro against the pound at current levels, around 80.73 pence, with an initial take-profit target of 81.50 and a stop loss at 79.75. WEAK DATA Manufacturing output dropped 1.1 percent in August after a downwardly revised bounce of 3.1 percent in July, while Britain's goods trade deficit widened more than forecast to 9.8 billion pounds as exports fell and oil imports rose. But the pound edged higher against the euro, which was hampered by uncertainty over when Spain may seek aid and the lack of progress in talks on getting Greece back on track with its bailout programme. The euro was last down 0.25 percent at 80.73 pence. However, it continued to hover close to a three-week high of 81.00 reached on Monday. Analysts said it faced strong chart resistance at the mid-September peak of 81.14 pence and the 200-day moving average at 81.18 pence, though a break above these levels could pave the way for further rise. "Euro rallies up to the 200-day moving average are probably worth fading," said Jeremy Stretch, head of currency strategy at CIBC. There was also some better news on the UK economy overnight, with surveys showing some improvement in UK retail sales and the housing market.

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