* Dollar index rises to highs last seen in mid-February
* Upbeat ISM helps lift sentiment after some confusion over correction
* Soft German inflation cements expectations of ECB action this week
* China data, Australia rate decision next in focus
By Ian Chua
SYDNEY, June 3 (Reuters) - The dollar hovered at its highest in over three months against a basket of major currencies early on Tuesday, having risen on the back of upbeat U.S. data and with the euro still in the doldrums.
Trading was choppy overnight reflecting some confusion after the U.S. Institute for Supply Management corrected its manufacturing activity index for May to 55.4, from a below-consensus reading of 53.2. The ISM said it had to make the correction due to an error in applying the seasonal adjustments.
Benchmark U.S. Treasury yields drifted back up as a result, helping boost the allure of the dollar. The dollar index climbed as far as 80.681, a high not seen since mid-February.
It was last at 80.631, after closing 0.3 percent higher in New York.
“The rally, if you can call it that, was interrupted for a time when the initial release of the U.S. Manufacturing ISM printed lower at 53.2, but a ”woops“ moment ensued when a U.S.-based economist picked up an error,” said David de Garis, senior economist at National Australia Bank in Sydney.
“In the event, it was revised not once but twice, first to 56.0, but finally to 55.4, still a rise of 0.5 points and reflecting a U.S. manufacturing sector and economy back on a more secure growth path.”
Against the yen, the greenback fetched 102.40, having risen 0.6 percent on Monday in its biggest one-day rise in over two months. The dollar also gained ground on the euro, which slid to $1.3596, near a 3-1/2 month trough of $1.3586 plumbed late last month.
Further undermining the common currency was data showing annual inflation in Germany slowed to its weakest in years in May, raising the downside risk for the euro zone rate due later in the day.
Such an outcome should add pressure on the ECB, already fretting about a protracted period of low inflation, to act when it meets on Thursday.
The ECB is widely expected to trim its refinancing rate, send its deposit rate into negative territory and launch a long-term refinancing operation targeted at businesses.
The euro, though, managed to gain against the yen, rising to 139.25 and pulling further away from a near four-month trough of 137.98 set last week.
Commodity currencies also took a hit with the New Zealand dollar reaching to its lowest in 2-1/2 months at $0.8440 .
The Australian and Canadian dollars also ceded ground against the greenback ahead of interest rate decisions by the Reserve Bank of Australia (RBA) and Bank of Canada (BOC).
Both central banks are widely expected to hold interest rates steady this week. The RBA will announce its decision at 0430 GMT, followed by the BOC on Wednesday.
The Aussie was last at $0.9239, down from Monday’s high of $0.9321, while the Canadian dollar traded at C$1.0899 per USD, having hit a one-week low of C$1.0912 per USD.
Investors will also be keeping a close eye on economic releases including Australia’s retail sales, a survey on China’s services sector and HSBC’s final report on China’s factory activity.
Any major disappointment in the Chinese data could weigh on risk appetite and help spark a reversal in the safe-haven yen. (Editing by Eric Meijer)