* Dollar index stalls near three-week peak
* Upbeat U.S. data needed for further USD gains
* Speculators reducing bets on dollar/yen
* Soft China flash PMI number dents Aussie
By Ian Chua and Hideyuki Sano
SYDNEY/TOKYO, March 24 The dollar held on to last week's gains on Monday though it lacked a fresh catalyst to extend them while the Australian dollar dipped after a soft Chinese manufacturing data.
The dollar index stood at 80.143, little changed from late New York levels on Friday, but still not far off a three-week peak of 80.354 set on Thursday.
Investors snapped up the dollar last week as they swiftly brought forward the risk of a U.S. interest rate hike early in 2015 after new Fed Chair Janet Yellen surprised markets by raising the prospect of such a move.
Traders said further gains for the dollar now depend on the strength of coming data, with any acceleration in the U.S. economic recovery likely to bolster expectations of an earlier normalisation of Fed policy.
"A broader-based rally in USD requires validation of the Fed's more aggressive interest rate forecasts from a continued step-up in U.S. data," analysts at JPMorgan wrote in a note to clients.
Against the yen, the dollar was a touch firmer at 102.46 yen as was the euro at 141.40 yen.
"Money tends to flow to currencies with higher rates. The dollar is struggling to extend gains probably because many people had already had a big dollar long position," said Bart Wakabayashi, head of forex at State Street Global Markets in Tokyo.
Indeed, data from the U.S. derivatives watchdog, the Commodity Futures Trading Commission, showed on Friday that speculators are reducing their bets on the dollar against the yen. Their net dollar long position dropped to the lowest level since October, having more than halved from a peak in late December.
The euro was flat at $1.3799, having drifted up from a two-week trough of $1.3749.
Despite last week's 0.9 percent fall, the euro was still not far from a 2-1/2 year high of $1.3967 set earlier in the month.
That resilience prompted the president of the European Council, Herman Van Rompuy, to complain on Friday that the common currency was too strong for euro zone exporters.
Partly supporting the euro has been the perception that the European Central Bank is highly reluctant to ease policy any further.
Governing Council member Erkki Liikanen on Saturday, however, held out the possibility of further cuts, including taking the deposit rate to negative territory.
ECB President Mario Draghi will have a chance to press home the message that the bank will stick to a very accommodative policy stance for a long time when he speaks in Paris on Tuesday.
The Australian dollar dipped after a survey showing activity in China's factories contracted again in March.
The flash Markit/HSBC Purchasing Managers' Index (PMI) fell to an eight-month low of 48.1 in March from February's final reading of 48.5.
The Aussie dropped to $0.9048 on the March number, but it kept some distance from last week's low of $0.8990 and was resilient enough to drift back up to at $0.9077.
Traders said Aussie bears have been frustrated by recent failed attempts to push the currency lower, forcing some to trim short positions.
The Reserve Bank of Australia governor and his deputy will both have the opportunity to talk down the currency, should they choose to, when they speak at events this week.
From disappointing economic data, to the country's first-ever domestic bond default and a spike in yuan volatility, there is plenty for China bears to chew over.
Last week, the yuan suffered its biggest weekly drop against the dollar to hit 13-month lows, although there were signs the currency may be finding a base.
While the decline was engineered by the central bank, which has stepped up efforts to shake out hot money from the market, there are worries it could have unintended consequences.
Top Chinese officials over the weekend reaffirmed the country will introduce market-based interest rates and a market-based exchange rate for the yuan currency.
(Editing by Shri Navaratnam and Richard Borsuk)