(Updates to close of European markets)
* U.S. shares fall, European shares erase gains after U.S. ISM data
* Oil prices fall more than 3 pct on U.S. crude stocks data
* Dollar slips after ISM data casts doubt on U.S. economy
* Treasury yields little changed, Friday's jobs data awaited
By Sam Forgione
NEW YORK, Sept 1 (Reuters) - U.S. shares edged lower, European shares erased gains and the dollar dipped on Thursday after a report showing weakness in U.S. manufacturing last month added to uncertainty ahead of Friday's monthly U.S. jobs data, while oil prices tumbled.
The Institute for Supply Management (ISM) said its index of national factory activity fell to 49.4 in August, below expectations of economists polled by Reuters for a dip to just 52.0, and showing the first contraction in manufacturing since February.
The data weighed on sentiment amid an already nervous investor environment ahead of Friday's U.S. employment report for August. Federal Reserve Vice Chair Stanley Fischer said last week that the central bank would consider the jobs data when discussing when to next raise interest rates.
The tech-heavy Nasdaq rose, however, boosted by Charter Communications, which was last up more than 4.5 percent after the S&P Dow Jones Indices said the cable services company was set to join the S&P 500 index.
Employers are expected to have added 180,000 jobs in August, according to a Reuters poll of economists. Adding reasons for the Fed to raise rates was data showing U.S. weekly jobless claims were lower than expected at 263,000 last week.
European shares also lost ground after the weak U.S. ISM data. Shares in the region had earlier climbed to two-week highs.
"Both the lower oil prices and the ISM show weakness in the economy," said Tim Ghriskey, chief investment officer of Solaris Asset Management in New York. "There's fear that there's a disconnect between what the Fed might do and what the data is showing us."
Oil prices extended Wednesday's declines, with the market focused for a second straight day on U.S. government data showing a rise in U.S. crude stocks in the last week.
MSCI's all-country world equity index was last up 0.55 points, or 0.13 percent, at 417.16.
The Dow Jones industrial average was last down 2.71 points, or 0.01 percent, at 18,398.17. The S&P 500 was down 2.3 points, or 0.11 percent, at 2,168.65. The Nasdaq Composite was up 11.37 points, or 0.22 percent, at 5,224.59.
Europe's broad FTSEurofirst 300 index closed down 0.08 percent, at 1,351.17.
Brent crude was last down $1.30, or 2.77 percent, at $45.59 a barrel. U.S. crude was down $1.35, or 3.02 percent, at $43.35 per barrel.
The dollar index, which measures the greenback against a basket of six major currencies, pulled back from Wednesday's more than three-week high of 96.255 and was last down 0.36 percent at 95.672 after the ISM data cast doubts on the strength of the U.S. economy.
U.S. Treasury yields were little changed, with the focus remaining on Friday's U.S. jobs data. Benchmark 10-year yields were last at late Wednesday's level, of 1.568 percent.
"Everybody's just waiting for the number tomorrow," said Craig Bishop, RBC Wealth Management's lead strategist for U.S. fixed income.
Spot gold touched $1,301.91 an ounce, its lowest in more than two months, as investors awaited Friday's U.S. employment data. (Additional reporting by Marc Jones in London, Dion Rabouin and Karen Brettell in New York and Yashaswini Swamynathan in Bengaluru; Editing by Nick Zieminski)