NEW YORK, Nov 3 - The dollar backed down from two-week peaks versus the yen it hit earlier on Monday as traders braced for a U.S. manufacturing survey that was expected to show recovery building momentum in the world's largest economy. The greenback was narrowly mixed against most major rivals; modestly lower against the euro but still not far away from two-week highs. A strong reading on the Institute of Supply Management's (ISM) business sentiment index would likely be seen as a sign of continued fast growth during the fourth quarter in the United States after a 7.2 percent expansion in July-September. "The dollar is trading slightly stronger ahead of ISM, but maybe a lot of the dollar buying will be factored in ahead," as market participants bet on a robust reading in the wake of last week's U.S. data, said David Leaver, senior trader with Gain Capital in Warren, New Jersey. "Unless the ISM number is phenomenal, we expect the dollar to have a retracement," Leaver added. The ISM index, due out at 10:00 a.m. (1500 GMT) was seen rising to 56.0 in October according to economists' consensus forecasts, from September's 53.7. It follows a similar euro zone survey showing continued improvement there. Early Monday morning in New York, the euro was up 0.1 percent at $1.1596, above Friday's two week lows. Against the yen , the dollar was up 0.1 percent at 110.05 yen, after touching its highest since October 20 at 110.49 earlier in the global session. Against the Swiss franc the dollar was virtually flat on the day at 1.3399 francs. The pound was nearly flat at $1.6951. The euro was up 0.3 percent against the yen at 127.66 , after a holiday in Japan kept liquidity thin during the Asian session.
Among other U.S. economic data, auto sales figures will be released later on Monday. "Data out last week suggested that the consumer was unable to sustain the buying spree of the summer and the auto sales figures may point in the same direction," wrote currency strategists with HSBC in a daily research note. Later in the week, the pivotal U.S. data event is likely to be the October non-farm payrolls report. That will be watched for signs whether the jobs market, the last weak point in the U.S. economy, is also improving. "The mood since the GDP report has been of renewed confidence in the U.S. recovery. People are not so scared of buying dollars as they have been. Markets have been short of dollars for quite a while," said Chris Gothard, currency analyst at Brown Brothers Harriman. "A lot of people are expecting data this week to retain that air of solidity. Payrolls will be key but before that people will be happy to buy dollars."
U.S. MANUFACTURING STRENGTH
After recent concerns about political pressure on the dollar to fall were removed by U.S. Treasury Secretary John Snow's exchange rate testimony last week, the greenback is now able to respond to economic data. Expectations of strong ISM numbers were cemented on Friday when the National Association of Purchasing Management-Chicago manufacturing barometer showed growth accelerating from surprisingly weak September figures. "At the moment the market is focusing on chances of a sustainable U.S. recovery and feels that probably it does not have to pay attention to problems like the U.S. current account," said Michael Klawitter, senior currency strategist at WestLB in London. The Eurozone Purchasing Managers' Index rose further above the key 50 level that separates contraction from growth, reaching 51.3 in October from 50.1 in September. However, with the U.S. economic recovery seen outpacing any improvement in the euro zone, the single currency got little help. Technical analysts also said the euro's recent easing against the dollar could gather speed in the near term if strong U.S. data managed to push the single currency below key levels around $1.1530-50.//