* Dollar index up 0.2 percent at 78.346
* Euro falters despite better mfg PMI, German jobless
* Sterling retreats against dollar, euro after UK PMI data
* Yen holds near 7-week high vs dollar (Releads, adds quotes, updates prices)
By Tamawa Desai
LONDON, Sept 1 (Reuters) - The dollar firmed on Tuesday as share prices fell, prompting investors to shed perceived riskier currencies, and the euro fell despite moderately brighter data.
Sterling erased early gains against the dollar and the euro after an unexpected dip in UK manufacturing activity in August, stoking concerns about the pace of recovery in the British economy.
European shares were down more than one percent by midday trade, while S&P stock price futures index was down 0.7 percent.
That came after Chinese shares stabilised after a rout on Monday.
"The dollar is generally firmer as, with no particular catalyst, stock futures have slipped steadily into negative territory," said Adam Cole, global head of FX strategy at RBC Capital Markets.
The dollar index, which tracks the performance of the greenback versus a basket of six other major currencies, was up 0.2 percent at 78.346, recovering from a session low of 77.944.
Data on Tuesday showed euro zone purchasing managers' index (PMI) rose to 48.2 against forecasts for a 47.9 reading and German unemployment unexpectedly fell in August.
The data comes before a European Central Bank policy meeting on Thursday widely expected to keep benchmark rates steady at a historic low of 1 percent with focus on policymakers' outlook on the economy.
But the euro failed to make headway on the data as falls in equities weighed. It was last down 0.2 percent at $1.4291 from a session high of $1.4377 and down 0.1 percent at 133.15 yen.
Falling stocks benefited the yen. The Japanese currency held at 93.07 yen per dollar, little changed from late New York levels but below Monday's seven-week high of 92.54 set on trading platform EBS.
Sterling was down 0.4 percent on the day to $1.6210, within a whisker of the session's trough of $1.6205 and was 0.1 percent lower against the euro at 88.15 pence after poor UK PMI data.
The headline UK PMI fell to 49.7 in August from a downwardly revised 50.2 the previous month. It was the first fall since February and well below the consensus forecast for a rise to 51.5.
"People were expecting an improvement (in UK PMI) but the decline ... is a downside surprise," said Ardash Sinha, a currency strategist at Barclays Capital in London.
Traders will keep a close eye on U.S. ISM manufacturing data due at 1400 GMT, which is forecast to show a reading of 50.5 in August versus 48.9 the previous month.
The Australian dollar lost some ground against the U.S. dollar after its central bank sounded less hawkish than some had anticipated.
The Australian dollar fell 1.1 percent to $0.8348, after edging up close to last month's 11-month peak at $0.8479 ahead of the Reserve Bank of Australia policy statement.
The RBA, holding its cash rate at 3.0 percent as expected, said the current low level of rates was appropriate, countering speculation it would adopt an explicit tightening bias. (Additional reporting by Emelia Sithole-Matarise; editing by Chris Pizzey)