U.S. home builder sentiment fell for a third straight month in August to its lowest level in nearly 1-1/2 years, pointing to a weak housing market as the economic recovery loses steam.

Further signs that the recovery from the longest and deepest recession since the 1930s was taking a step back were contained in another report on Monday that showed below-forecast growth in manufacturing activity in New York state, with new orders and shipments tumbling.

Although the data remains weak, most economists still do not believe that the economy is slipping back into recession.

While I don't take the view that the economy is faltering, what's happening out there is that there is not a lot of growth out there, said Joel Naroff, president, Naroff Economic Advisors in Holland, Pennsylvania.

The National Association of Home Builders/Wells Fargo Housing Market Index slipped one point to 13, defying market expectations for a rise to 15. A reading above 50 indicates that more builders view sales conditions as good than poor, and the index has not been above that level since April 2006.

Separately, the New York Federal Reserve said its Empire State general business conditions index increased to 7.10 in August from 5.08 in July. The figure was below the 8.00 expected by economists polled by Reuters.

U.S. stocks traded lower on the reports, while the U.S. dollar fell against the yen. Prices for safe-haven U.S. government debt rallied, with the benchmark 10-year Treasury yield, which moves inversely to the price, falling to a fresh 17-month low.

Investor sentiment was also soured by news that Japan's economic growth slowed to a crawl in the second quarter, with gross domestic product growth of 0.1 percent that translates to annualized expansion of 0.4 percent.

This was well below the median market forecast of 2.3 percent and the United States' 2.4 percent annualized growth in the same quarter.

BUILDERS WORRY ABOUT ECONOMY

The NAHB survey showed the current sales conditions gauge for single-family home sales slipped this month to its lowest level since June 2009. The sales expectations measure for the next six months touched its lowest level since March 2009.

Builders are expressing the same concerns that they are hearing from consumers right now, particularly the sense that the overall economy and job market aren't gaining any traction, said NAHB Chairman Bob Jones.

The housing market, which was the main trigger of the recession, is struggling to regain its footing following the end in April of a popular homebuyer tax credit that had boosted sales and home building activity.

While manufacturing activity in New York state rose this month, the Empire State index remained well below its recent high near 32 reached in April. The survey showed the new orders index fell below zero for the first time since June 2009.

The index of business conditions six months ahead fell to 35.71, the lowest since July 2009, from 41.27 in July.

However, the survey contained some encouraging news on employment, which has been the Achilles heel of the recovery. The employment index rose to 14.29 in August from 7.94 in July and the average workweek index jumped to 7.14 from -9.52.

Adding to uncertainty about the economic outlook, home improvement chain Lowe's Cos said on Monday it missed quarterly profit and sales estimates as benefits from the homebuyer tax credit and cash for appliances programs waned. The retailer warned of uncertain demand.

(Reporting by Lucia Mutikani in Washington and Wanfeng Zhou in New York, Editing by Chizu Nomiyama)