FOREX-Dollar languishes near 1-week low after weak US manufacturing activity

* Dollar index trades near previous day’s 1-week low

* Weak NY Fed manufacturing survey weighs on dollar

* Euro holds firm, having edged back up toward $1.10

SINGAPORE, May 16 (Reuters) - The dollar traded near a one-week low versus a basket of major currencies on Tuesday, having come under pressure after a surprisingly soft U.S. manufacturing report.

The New York Federal Reserve said on Monday its barometer on business activity in New York state unexpectedly fell in May, sinking into negative territory for the first time since October.

Analysts cautioned that the downturn could be a harbinger of possible deterioration in the manufacturing sector.

The dollar index, which measures the greenback’s value against a basket of six major currencies, last traded at 98.855 . On Monday, it touched a low of 98.787, its weakest level since May 8.

On the whole, Teppei Ino, analyst for Bank of Tokyo-Mitsubishi UFJ in Singapore, said the weak reading on New York manufacturing activity hasn’t substantially altered the positive sentiment toward the U.S. economy.

“I think people want to wait and see,” Ino said, adding the general view seems to be that the U.S. economy is still holding firm.

The euro edged up 0.1 percent to $1.0984 after gaining 0.4 percent on Monday.

The single currency is now within sight of a six-month high of $1.1024 set last week, when it rose on a relief rally after centrist Emmanuel Macron was elected France’s president.

The dollar eased 0.1 percent against the yen near 113.71 , after rising 0.4 percent on Monday.

The greenback has risen more than 1.9 percent against the yen so far this month, as risk sentiment improved after France’s presidential elections and focus shifted back towards the outlook for monetary policy.

Market expectations for the Federal Reserve to raise interest rates in June have helped underpin the dollar recently.

“If strength in equities or rises in yields around the world continues, that will probably result in a supportive environment for the dollar against the yen,” said Shinichiro Kadota, senior FX strategist for Barclays in Tokyo.

The Australian dollar rose 0.2 percent to $0.7428, staying on a firm footing after getting a boost on Monday, when oil prices jumped about 2 percent. (Reporting by Masayuki Kitano; Editing by Shri Navaratnam)