* Dollar firms vs basket of currencies
* U.S. stock indexes fall more than 1 pct at midday
* U.S. manufacturing expanded in August (Recasts; updates prices, adds details, comments)
By Wanfeng Zhou
NEW YORK, Sept 1 (Reuters) - The dollar rose against a basket of currencies on Tuesday as sharp losses in global stock markets offset stronger-than-expected U.S. manufacturing data and boosted the greenback's safe-haven appeal.
Major U.S. stock indexes fell more than 1 percent as investors fretted that prices may have run ahead of the economic recovery. The decline came despite upbeat economic news from the United States and euro zone as well as a stabilization in Chinese shares after a rout on Monday.
"It looks like the dollar is still just taking cues from equity markets," said Vassili Serebriakov, currency strategist at Wells Fargo in New York. "Equities are off ... and the dollar is up. It looks like a risk aversion" trade.
In midday trading in New York, the dollar index, which tracks a basket of six major currencies, was up 0.6 percent at 78.677, rebounding from a session low of 77.944 according to Reuters data.
The U.S. manufacturing sector expanded in August for the first time in more than a year and a half. The Institute for Supply Management's index of national factory activity rose to 52.9 in August from 48.9 in July.
Separate data showed pending sales of previously owned U.S. homes raced to a two-year high in July, providing more evidence the housing market was on a steady recovery path.
"Clearly, the U.S. data is surprising to the upside," said Jack Iles, senior portfolio manager who helps manage $2.5 billion assets at MFC Global Investment Management in Boston.
The euro fell 0.7 percent to $1.4228, well below a session high of $1.4377.
Falling stocks also provided some support for the yen, with the euro last down 0.6 percent at 132.44 yen. The dollar was little changed at 93.03 yen, slightly above Monday's seven-week low of 92.53, according to Reuters data.
WAIT-AND-SEE MODE
Despite a batch of upbeat U.S. economic numbers, major currencies remained in ranges as investors continued to debate about the outlook for the global economy, analysts said.
"At the end of the day, the market is still in wait-and-see mode," said Firas Askari, head of currency trading at BMO Capital Markets in Toronto. "We're getting jostled around by every piece of data that comes out and I don't think there's a consensus that this economy has legs."
Data released earlier also showed euro zone purchasing managers' index (PMI) rose to 48.2 in August against forecasts for a 47.9 reading while German unemployment unexpectedly fell in August.
The data comes before a European Central Bank policy meeting on Thursday widely expected to keep benchmark rates steady at a historic low of 1 percent with the focus on policymakers' outlook on the economy.
Sterling erased early gains against the dollar and the euro after an unexpected dip in UK manufacturing activity in August, stoking concerns about the pace of recovery in the British economy.
Sterling was down 0.8 percent at $1.6152 and was little changed against the euro at 88.04 pence.
In other trading, the Australian dollar fell 1.8 percent to US$0.8290. The Reserve Bank of Australia, holding its cash rate at 3.0 percent as expected, said the current low level of rates was appropriate, countering speculation it would adopt an explicit tightening bias.