* Dollar hits lowest level of the year vs currency basket
* Global stocks rally after U.S., other factory data
* Euro trades more than 1 percent higher
* Sterling, Aussie, kiwi, CAD hit multimonth highs (Adds comments, details. Updates prices)
By Vivianne Rodrigues
NEW YORK, Aug 3 (Reuters) - The dollar hit its lowest level in 2009 against a basket of currencies on Monday on encouraging manufacturing reports from China, Europe and the United States, triggering a rally in stocks and boosting risk appetite.
In addition to the factory data, solid earnings from European banks HSBC Holdings PLC and Barclays PLC helped the euro to rise more than 1 percent and gave a boost to higher yield currencies.
A key measure of U.S. manufacturing shrank in July but at a slower pace than in June. Stocks on Wall Street rose after a rebound in sales by Ford Motor Co.
"The improvement in U.S. economic data should further boost risk-seeking and weigh on the dollar," said Brian Kim, a currency strategist at UBS AG, in Stamford, Connecticut.
The euro hit its highest level this year at $1.4427 and was last at $1.4417, up 1.2 percent on the day, according to Reuters data. Meanwhile, sterling and the Australian and New Zealand dollars hit their highest since autumn.
"The forex market may build momentum to keep pushing euro/dollar above the 1.44 level, especially if data remain supportive," said Matthew Strauss, a senior currency strategist at RBC Capital Markets in Toronto. "We are seeing broad dollar weakness as commodity and other higher yielding currencies jump."
The dollar index, a gauge of the U.S. currency's performance against six other major currencies, fell to as low as 77.524, its lowest in about 10 months. A rally in oil prices to above $71 per barrel contributed to the drop in the index, traders said.
Also helping to batter the U.S. currency was a jump in European shares to their highest since November as HSBC reported that profits halved from a year ago, but were still ahead of forecasts.
HSBC's announcement followed Barclays report of an 8 percent rise in half-year profit, though bad debts at the bank almost doubled.
RECOVERY PICKS UP STEAM
The Institute for Supply Management said its index of U.S. factory activity rose to 48.9 in July from 44.8 in June. That was above economists' expectations. A reading below 50 indicates contraction in manufacturing.
"It's full steam ahead for the recovery," said Alan Ruskin, chief international strategist, at RBS Global Banking and Markets, in Greenwich, Connecticut.
"The July ISM data is very much in keeping with a recovery picking up some momentum, even if the overall index has yet to make its way out of the contraction zone (below 50)."
A UK purchasing managers' index for manufacturing moved into positive territory for the first time since March 2008, while an equivalent survey on the euro zone was also better than expected.
In China, a measure of manufacturing rose to a one-year high, powered by domestic spending that helped offset anemic exports.
Sterling rose to as high as $1.6936 and among commodity-linked currencies, the Australian dollar climbed to as much as $0.8440 while the New Zealand dollar rose to $0.6687.
The Canadian dollar rose as high as C$1.0644 per U.S. dollar.
Traders said the Aussie was being supported by expectations that the Reserve Bank of Australia may drop a key reference on monetary easing at its policy meeting on Tuesday while keeping the cash rate unchanged at 3 percent.
Markets are also anticipating policy decisions from the Bank of England and the European Central Bank later this week.
(Additional reporting by Gertrude Chavez-Dreyfuss in New York; Editing by Kenneth Barry)