October 2, 2017 / 2:34 PM / in 16 days

FOREX-Dollar gains on strong manufacturing data

* Strong manufacturing data boosts dollar

* Political uncertainty in Europe weighs on single currency (Updates with U.S. market open, adds data, quotes, changes dateline, previous LONDON)

By Karen Brettell

NEW YORK, Oct 2 (Reuters) - The dollar gained against the euro and the yen on Monday after a manufacturing index rose to its highest level since 2004, boosting hawkish bets on the U.S. economy.

The ISM U.S. manufacturing activity index rose to 60.8 in September, above economists’ expectations of 58, while the prices paid index was also the highest since May 2011.

“The activity side of the manufacturing ISM is encouraging. It’s in line with firm (manufacturing reports) around the world, which I think suggests the global manufacturing momentum is quite positive,” said Vassili Serebriakov, currency strategist at Credit Agricole in New York.

“I think the markets pushed the dollar higher because the prices paid index jumped,” Serebriakov said, adding: “I think we need to be cautious about that series as it’s not seasonally adjusted and it could reflect the impact of the recent hurricanes.”

The dollar was last up 0.56 percent against the euro at $1.1745 and up 0.15 percent against the yen at 112.64 .

The euro was also hurt after a violence-marred independence vote in Spain’s Catalonia region fueled anxiety over political risk in the euro zone.

Spanish Prime Minister Mariano Rajoy faces the country’s biggest constitutional crisis in decades after the ballot, in which Catalan officials said 90 percent of voters had chosen to leave Spain.

“Political risks in Europe have increased,” said UBS currency strategist Constantin Bolz, in Zurich. However, “overall our expectation is that it will not have a dramatic, long-lasting impact.”

The prospect of U.S. tax reform and the likelihood of a further interest rate hike in December also boosted the greenback.

The White House on Wednesday unveiled a long-awaited Republican tax reform framework that calls for lower tax rates for businesses and individuals.

U.S. President Donald Trump is also ramping up his search for a new chief for the U.S. central bank, meeting with former Federal Reserve Governor Kevin Warsh, who is seen as more hawkish than current Fed Chair Janet Yellen.

Yellen is also among three others under consideration for the job.

Technical analysts at Citigroup noted that U.S. Treasuries ended September with higher yields than were reached the previous month, making further yield rises likely.

That should translate to further dollar gains against the yen as the currency pair is correlated with bonds, and after the greenback posted a bullish reversal against the Japanese currency in September, the analysts, including Tom Fitzpatrick, said in a report.

Additional reporting by Jemima Kelly in London; Editing by Dan Grebler

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