FOREX-US dollar rises, eyes best monthly gain in 16 years

* Dollar index has best month since October 1992

* Dlr has best month vs euro since single currency launch

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

By Gertrude Chavez-Dreyfuss

NEW YORK, Aug 29 (Reuters) - The U.S. dollar rallied against a currency basket on Friday, on track for its best monthly gain in nearly 16 years, boosted by a batch of data showing a far more stable growth path for the United States than the rest of the world.

U.S. consumer spending slowed in July, but this was more than offset by a report showing business activity in the U.S. Midwest expanded at a more robust rate than expected, fueling a round of dollar buying.

"The U.S. data contrasts with weaker reports from abroad as the global economy deepens its slowdown," said Joe Manimbo, a currency trader at Ruesch International in Washington. "This is a continuation of the more upbeat sentiment on the U.S. currency."

Separate data showing U.S. consumer confidence rose to a five-month high in August, posting a sharp recovery from depressed levels with the help of easing energy prices, added to dollar optimism even, if it offered little new trading impetus.

In late New York trading, the dollar index .DXY on the ICE Futures Exchange was up 0.3 percent on the day at 77.327. Friday's gains have put the index on pace for its best monthly performance since October 1992, according to Reuters data.

The euro was down 0.2 percent at $1.4670, off more than 8 percent from its all time peak set in mid-July EUR= and on pace for its worst monthly loss since its launch in 1999.

Friday's 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.

The dollar JPY= was down 0.6 percent against the yen at 108.62 yen, but was up nearly 1 percent this month.

The U.S. dollar rose 1.2 percent versus the Canadian dollar to C$1.0631 CAD=, its biggest one-day gain in three weeks, after data showed the Canadian economy narrowly skirted a recession in the second quarter, growing 0.3 percent. Economists were expecting a 0.7 percent expansion.

WEAK CANADIAN DOLLAR, STERLING

Still, some analysts say a weak gross domestic product number is not sufficient to warrant an interest rate cut from the Bank of Canada.

"Though Canadian growth may prove slightly weaker than expected in H1 2008, the accumulated impact of rate cuts to date should help cushion any downside risks," said analysts at Morgan Stanley in a research note.