* Dollar firmer versus basket of currencies
* Euro falters despite encouraging euro zone, German data
* Sterling retreats after UK PMI data
* Market awaits U.S. ISM manufacturing reading (Adds quotes, updates prices, changes byline, changes dateline, previous LONDON)
By Wanfeng Zhou
NEW YORK, Sept 1 (Reuters) - The U.S. dollar edged higher against major currencies on Tuesday as a decline in stock prices boosted the greenback's safe-haven appeal.
European shares <.FTEU3> fell despite better-than-expected
euro zone economic data and stabilization in China's stock
market after a rout on Monday. U.S. stock futures
"The general theme once again is a reduction in risk appetite that's been triggered by softer euro zone equities," said Omer Esiner, senior market analyst at Travelex Global Business Payments in Washington.
"The pullback in stocks overnight despite some upside surprises to European data has once again kept demand for safe-haven dollars elevated."
In early New York trading, the dollar index, which tracks the performance of the greenback versus a basket of six major currencies, was up 0.2 percent at 78.368, recovering from a session low of 77.944 <.DXY>, according to Reuters data.
The euro was last down 0.2 percent at $1.4298 from a
session high of $1.4377
Data on Tuesday showed euro zone purchasing managers' index
(PMI) rose to 48.2 in August against forecasts for a 47.9
reading and 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.
Falling stocks benefited the yen. The Japanese currency
ISM AWAITED
Traders will keep a close eye on U.S. ISM manufacturing data due at 10 a.m. (1400 GMT), which is forecast to show a reading of 50.5 in August versus 48.9 the previous month.
"Today, one of the focuses is going to be on the ISM data, which is expected to rise above 50 for the first time since January, 2008," said Meg Browne, senior currency strategist at Brown Brothers Harriman in New York.
"We're likely to have firm U.S. data," she added. "In this kind of market, I think that'll help provide a little bit of a driver for the foreign currencies."
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. [ID:nLAG003703]
Sterling was down 0.5 percent on the day at $1.6198
The headline UK PMI fell to 49.7 in August from a downwardly revised 50.2 the previous month. It was the first fall since February and well below the consensus forecast for a rise to 51.5. [ID:nLAG003703]
In other trading, the Australian dollar fell 0.9 percent to US$0.8360 after the central bank sounded less hawkish than some had anticipated.
The RBA, 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. See [ID:nSYD483279] (Additional reporting by Tamawa Desai; Editing by Kenneth Barry)