* U.S. nonfarm payrolls rise 209,000 in July
* Data shows low U.S. wage inflation
* ISM U.S. factory activity rises to 57.1 in July (Updates prices, adds comments, changes dateline; previous LONDON)
By Sam Forgione
NEW YORK, Aug 1 The U.S. dollar dipped against a basket of major currencies on Friday after the U.S. government's July employment report showed no signs of wage inflation, supporting a continued dovish stance from the Federal Reserve.
The Labor Department said U.S. nonfarm payrolls increased 209,000 last month, below economists' expectations for an increase of 233,000, while the unemployment rate unexpectedly rose to 6.2 percent. Data for May and June, meanwhile, were revised to show a total of 15,000 more jobs created than previously reported.
Analysts said the lower-than-expected jobs growth still showed solid momentum when combined with the upward revisions for the prior two months. They also said the increase in the labor force participation rate, to 62.9 percent from 62.8 percent, and roughly flat average hourly earnings growth were more critical, because they indicated a lack of wage inflation.
"If wage inflation is falling, that gives the Fed more room to keep interest rates at zero," said Jose Wynne, global head of FX research at Barclays in New York. The Fed is closely monitoring wage inflation as a potential signal of reduced slack in the economy, which could prompt the central bank to raise rates.
Wynne said the dollar's dip was mild since traders continued to chase an upward trend in the currency. The dollar climbed more than 2 percent in July to notch its best monthly gain in nearly 1-1/2 years, largely on the view that recovering U.S. economic growth would pave the way for a more hawkish Fed.
The U.S. dollar index, which measures the dollar against a basket of six major currencies, was last down 0.18 percent at 81.312, retreating further from Thursday's 10-1/2-month high of 81.573.
The dollar index held losses after The Institute for Supply Management (ISM) said its index of national factory activity rose to 57.1 in July. That was the highest since April 2011.
"The ISM reflects underlying strength in the U.S. economy" but was overshadowed by the employment report, said Shaun Osborne, currency strategist at TD Securities.
Consumer sentiment for July, meanwhile, was slightly below expectations. Thomson Reuters/University of Michigan's final July reading on the overall index on consumer sentiment came in at 81.8, a touch below the 82.0 estimate.
The euro was last up 0.28 percent against the dollar at $1.3424 after hitting a session high of $1.3433.
Against the yen, the dollar was last down 0.12 percent at 102.68 yen after hitting a low of 102.65 yen, and was down 0.31 percent against the Swiss franc at 0.9057 franc after hitting a session low of 0.9054 franc.
The yield on benchmark 10-year U.S. Treasury notes edged down to 2.53 percent, from 2.56 percent late Thursday. (Reporting by Sam Forgione; Editing by Dan Grebler)