* Dollar strengthens on strong U.S. services, factory figures
* European shares rise after encouraging earnings reports
* Asia hit by unexpected weakness in China services PMI
* Wall Street pares declines after data (Adds U.S. market open, quote; changes dateline; previous LONDON)
New York, Aug 5 (Reuters) - The U.S. dollar strengthened and bond yields rose on Tuesday after strong data on factory orders and service-sector growth, while European shares gained modestly after earnings reports.
Wall Street was modestly weaker, as investors reacted negatively to earnings from Cablevision and a warning on weak sales from Target Corp.
The dollar hit its highest level since September 2013 against a basket of currencies after the Institute for Supply Management said service-sector growth in the United States hit an eight-and-a-half-year peak on strong growth in new orders and employment.
Factory orders were also strong in July and data showed positive revisions to durable goods orders, a sign that the economy continues to improve. The euro fell to a day's low of $1.3357 after the U.S. data, while the dollar rose against the yen to 102.86, continuing a trend of strength in the U.S. currency.
"Generally, the dollar started off on a stronger footing this morning and certainly the strengthening of the data has helped that rally," said Brian Daingerfield, currency strategist at the Royal Bank of Scotland in Stamford, Connecticut.
U.S. 10-year yields hit a session high of 2.53 after the manufacturing and services data. The benchmark 10-year U.S. Treasury note was down 7/32, the yield at 2.5143 percent.
The U.S. data was offset somewhat by weak figures out of China, where the HSBC/Markit services PMI fell to 50.0 in July, the lowest since November 2005, from a 15-month high of 53.1 in June. It suggests a recovery in the world's second-largest economy may need further government support.
The Dow Jones industrial average fell 55.47 points, or 0.33 percent, at 16,513.81. The Standard & Poor's 500 Index was down 6.35 points, or 0.33 percent, at 1,932.64. The Nasdaq Composite Index was down 6.63 points, or 0.15 percent, at 4,377.26.
Shares of Cablevision fell 5 percent after the company said subscriber losses doubled in the second quarter, while Target was down 2.8 percent after saying U.S. and Canadian sales have been challenging.
The MSCI All-World Index fell 0.4 percent.
European PMI figures showed the continent's economy was growing, as expected. But manufacturing remained weak and kept intact expectations the European Central Bank will ease monetary policy further and pressured the euro.
Investors in Europe were cheered by forecast-beating results from German luxury carmaker BMW and France's third-biggest listed bank, Credit Agricole, among others.
The pan-European FTSEurofirst 300 index of leading shares was up 0.4 percent, a small recovery from its near 4 percent fall over the past two weeks on concerns over financial uncertainty for Portugal's Banco Espirito Santo, which was later bailed out.
In commodities markets, Brent crude slipped below $105 a barrel, falling $1.12 to $104.29 as ample supplies outweighed Middle East turmoil, while U.S. crude shed 85 cents to $97.44. (Reporting by Chuck Mikolajczak; Additional reporting by Daniel Bases; Editing by Dan Grebler)