(Recasts after European data, updates prices, adds new quote)
* Euro buoyed by strong inflation data, PMIs
* U.S. data also strong
* Friday's U.S. payrolls report eyed
* Graphic: World FX rates in 2016 tmsnrt.rs/2egbfVh
By Jemima Kelly
LONDON, Jan 4 (Reuters) - The dollar edged down from a 14-year high against a basket of currencies on Wednesday, with investors cautious about increasing bets on the greenback before getting fresh clues on the U.S. economy and the timing of interest rate rises.
The dollar surged to its highest levels since late 2002 on Tuesday - the first day of trading in 2017 for most financial centres - after U.S. manufacturing data beat expectations, once again threatening to reach parity with the euro, which fell to a 14-year low of $1.0340.
But the single currency climbed 0.3 percent on Wednesday to $1.0435, boosted by data showing euro zone prices rose faster than expected in December and surveys suggesting business growth reached its highest in more than five years .
That left it almost a cent above the trough hit on Tuesday, but some way off a three-week peak of $1.07 touched during a bout of low liquidity last week and over 6 percent lower compared with two months ago.
"The data coming from Europe is supportive for the euro, but only at the margins," said MUFG currency economist Lee Hardman, in London.
"Ultimately, the feed-through into the euro is dampened by the fact that the ECB (European Central Bank) has already announced an extension of its QE (quantitative easing) programme into the end of this year. So it's unlikely that the data is going to be strong enough in the near term to prompt a reassessment."
The dollar has climbed almost 6 percent since Donald Trump was elected as U.S. president eight weeks ago, on expectations that his new administration will introduce reflationary measures backed by large fiscal spending, prompting the Federal Reserve to follow through with a series of interest rate hikes.
But with investors already pricing in two to three rate increases this year, analysts reckon they will want to see more evidence that growth and inflation are rising and that the pace of rate hikes will accelerate before putting on more bets on the dollar.
HSBC, nevertheless, changed its forecasts late on Tuesday to show the euro falling to $1.01 in the first quarter, down from $1.08 previously, though they expect the dollar will then slip back for the rest of the year, never reaching parity.
The dollar index - which measures the greenback against a basket of six major rivals - fell 0.3 percent to 102.94, having hit a peak of 103.82 on Tuesday.
"Yes, we've had some good U.S. data, but we've also had stronger (European) data," said Rabobank currency strategist Jane Foley, in London.
"Are investors really prepared to push above those 14-year highs to make that extra move down to parity? I suspect the market may need a bit more incentive to do that."
The dollar was seen facing potential turbulence before Friday's highly anticipated U.S. non-farm payrolls report.
For Reuters new Live Markets blog on European and UK stock markets see reuters://realtime/verb=Open/url=http://emea1.apps.cp.extranet.thomsonreuters.biz/cms/?pageId=livemarkets (Additional reporting by Shinichi Saoshiro in Toyko; Editing by Larry King)