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UPDATE 1-BoE fear factor and data bounce help sterling

* Graphic: sterling and gilt yields http://bit.ly/2dgAXn1

* Graphic: World FX rates in 2017 http://tmsnrt.rs/2egbfVh

* Graphic: Trade-weighted sterling since Brexit vote http://tmsnrt.rs/2hwV9Hv

* Interactive: Tracking the Brexit effect http://tmsnrt.rs/2o5MUVS (Recasts after moves following data release)

LONDON, Sept 8 (Reuters) - Stronger-than-expected manufacturing data helped Britain's pound rise towards $1.32 and hold its ground against a broadly stronger euro on Friday as a wave of selling in the past month ran out of steam.

Overall industrial output was in line with forecasts for a small 0.4 percent expansion on the year in July but manufacturing, bolstered by a weaker pound, did far better, expanding 1.9 percent compared to a forecast 1.7 percent.

Neither number is likely to settle the unease that saw speculators double net bets against sterling in the past three weeks.

But traders say the weakness of the dollar and the possibility of a sign next week from the Bank of England that it is worried about the weak pound's effect on inflation have stalled the build-up of bets against the currency.

"We had the forecast beat on the industrial data this morning, but the big driver is really the weakness of the dollar," said Sam Lynton-Brown, a strategist with BNP Paribas in London.

"The resistance (to more euro gains) comes from the Bank of England's FX sensitivity. They have said several times they are not indifferent, and sterling is approaching the October lows."

A number of major banks have argued this week there is room for a pause in sales of the pound, but the emergence of several forecasts for a fall to parity with the euro underlines the risks to sterling from the Brexit process over the next few months.

The euro's strength after Thursday's European Central Bank meeting also raised the prospect of more pressure.

"With the ECB seemingly gearing up to reduce its Asset Purchase Programme once again, the risk remains of a fresh rally for the euro into territory (against the pound) it has rarely traded in before," said Simon Derrick, chief market analyst with Bank of New York Mellon in London.

"The pound faces a number of potential stumbling blocks in the weeks ahead," he said, pointing to parliament's vote on the government's umbrella EU repeal bill next week.

By 1008 GMT, sterling was 0.1 percent higher against the euro on the day at 91.70 pence. It gained just under a half a percent to $1.3161.

(Editing by Kevin Liffey)