Sterling hits 3-week low vs dollar

LONDON (Reuters) - Sterling hit a three-week low against a broadly stronger dollar on Friday, with manufacturing data stoking recession fears as the numbers contrasted weak activity with soaring price pressures.

The index of manufacturing activity contracted for a third month running and at the sharpest rate in a decade to 44.3 in July, its lowest since December 1998, while the prices component rose to a series high of 82.4.

The dismal Purchasing Managers Index reading followed housing and consumer confidence figures on Thursday that had already pointed to an economy rapidly losing momentum.

Despite sharply slowing growth, rising price pressures have left Bank of England policymakers deeply reluctant to implement growth-stimulating interest rate cuts from 5 percent.

"Yet again, we have some bad news on manufacturing which is especially disappointing as export orders seem to be crumbling despite the fall in sterling over the past year," Investec economist Philip Shaw said.

By 2:38 p.m., sterling was down 0.5 percent at $1.9740, having earlier hit a three-week low of $1.9729, while the euro was up 0.1 percent at 78.74 pence.

Sterling's losses against the dollar accelerated after U.S. non-farm payrolls data showed that a smaller than forecast 51,000 jobs were shed in July, which boosted the U.S. currency.

M&A activity weighed on sterling early on Friday after French power giant EDF (EDF.PA) called off a proposed takeover of British Energy BGY.L.

Figures on Thursday showed house prices marked their ninth straight monthly fall in June, taking the annual figure to its lowest since the data series began in 1991.