FOREX-Dollar to close August with best month in a decade

* Dollar has best month since January 1997

* Dollar index up over 5 pct in August

* Jump in U.S. Midwest business adds to dollar's allure (Recasts, updates prices, adds comment)

NEW YORK, Aug 29 (Reuters) - The dollar was on track to close out August with its best monthly rise in more than a decade on Friday as investors reacted to a slew of solid U.S. economic news for the week.

Sealing the dollar's gains against the euro in the New York session on Friday was a report showing business activity in the U.S. Midwest expanded at a far more robust rate than expected as new orders jumped. For more details, click [nNAT004324].

A separate report showing U.S. consumer confidence rose to a five-month high in August, posting a large recovery from depressed levels with the help of moderating energy prices, added to optimism surrounding the dollar even if it offered little new impetus in trading on Friday. [nN29410034].

The reports follow data earlier in the week showing greater-than-expected U.S. economic growth in the second quarter and strong durable goods orders for July.

"Again this stands out as robust relative to what is seen in Europe, and sends a now familiar signal of U.S. manufacturing competitiveness, notably relative to Europe," said Alan Ruskin, chief international strategist at RBS Greenwich Capital in Greenwich, Connecticut, in a research comment on the business activity report.

"This plainly is having an important effect in weighing down on euro/dollar, as it should," he said.

Midway through the New York session, the dollar index .DXY was up 0.1 percent on the day at 77.215. The euro was down 0.1 percent at $1.4685, around 13 cents off its all time high set in mid-July EUR=.

The dollar JPY= was down 0.9 percent against the yen at 108.62 yen.

There was little impact on trading from a report showing U.S. personal income tumbled unexpectedly in July and spending slowed as the effects of government stimulus wore off, while an inflation measure was at a 17-year high. For more details, click [nN28346862].

"The conclusion from this report I think is that the U.S. economy is nearing a bottom," said Greg Salvaggio, senior vice president of capital markets, Tempus Consulting in Washington, of Friday's inflation report.

EURO RESILIENCE

The euro was resilient in the face of lower-than-forecast euro zone inflation and sentiment indicators, as hawkish rhetoric from policy-makers raised expectations for higher euro zone interest rates. [ID:nLT484244].

European Central Bank Governing Council member Klaus Liebscher echoed comments from other policy-makers earlier in the week that inflation is too high [ID:nLT331903].

Still, as August comes to an end, the greenback is up 5.4 percent against a basket of currencies, heading for its biggest monthly gain since January 1997, Reuters charts show.

Sterling has had an even steeper fall against the dollar in August than the euro, down 8.1 percent, its biggest drop since it crashed out of the Exchange Rate Mechanism in 1992.

"The UK economic picture is deteriorating so rapidly, and the recent housing market data is confirming that. The market is rushing to revise down its growth forecast for the UK," said Ian Stannard, senior foreign exchange strategist at BNP Paribas in London.

"Things are getting worse, not better, for sterling."

The pound last traded down 0.3 percent at 1.8221 on the day GBP=.

The Australian dollar fell 8.6 percent in August, its worst month since February 1989, according to Reuters data, on expectations of narrowing interest rate differentials between the United States and Australia.

Friday is likely to be a shortened global session as U.S. traders leave early ahead of the long Labor Day holiday weekend.

Investors are expected to try to square positions by selling into any dollar strength before the end of the month and before next week's August U.S. employment report and central bank policy decisions in the euro zone and UK.

Geopolitical pressures on the dollar remain a concern, with a report in Britain's Daily Telegraph that Russia may restrict oil shipments in the coming days in response to the European Union's threat of sanctions over its military action in Georgia. (Reporting by Nick Olivari; Additional reporting by Simon Falush in London; Editing by Leslie Adler)