* ISM U.S. manufacturing index hits highest since Aug 2014
* Benchmark 10-year yield reaches near seven-week peak
* FX trading quiet ahead of U.S. July Fourth holiday
* Australian, Swedish central bank decisions on tap Tuesday
(Updates market action to early U.S. close) NEW YORK, July 3 (Reuters) - The dollar recorded its best day in four months on Monday, starting the new quarter on a strong note, bolstered by higher U.S. bond yields and data that showed manufacturing activity climbed to its strongest level in nearly three years. The greenback just came off its worst quarter since 2010 last week as overseas central banks have signalled they are considering whether to begin reducing monetary stimulus in light of evidence their local economies are doing better. "The market is debating whether central banks could follow through with their tightening. So far the data are going central banks' way," said Steven Englander, head of research and strategy at Rafiki Capital Management in New York. Earlier Monday, the Institute for Supply Management said its index of national factory activity rose to 57.8 last month, the highest reading since August 2014. This upbeat factory report propelled benchmark 10-year Treasury yield to 2.353 percent, the highest in nearly seven weeks, Reuters data showed. A closely watched index that tracks the dollar against six major currencies was 0.62 percent at 96.223, marking its biggest one-day increase since March 1. The dollar index rebounded from a near nine-month low seen on Friday. It shed 4.71 percent in the second quarter, its steepest quarterly loss since the 8.49 percent drop in third quarter of 2010. Speculators have reduced to net bullish dollar bets to their fewest in about year last week, Commodity Futures Trading Commission data showed late Friday. The greenback climbed to a six-week high against the yen at 113.45 yen. It was last up 0.9 percent at 113.40 yen. The euro retreated from its highest in more than a year against the dollar set last week. It was last down nearly 0.6 percent at $1.1358. The single currency brushed off a Reuters report that said some European Central Bank policy-makers were wary of removing the easing bias in its policy statement at its July 20 meeting.
Currency trading activity was muted ahead of the U.S. July Fourth holiday. U.S. financial markets will close early on Monday and will be shut on Tuesday. Ahead of Tuesday's meeting of Sweden's Riksbank, the Swedish crown was down 0.8 percent at 8.4920 crown per dollar. Any shift in the wording of the Reserve Bank of Australia's statement, also early on Tuesday, may also support the Aussie , which was 0.5 percent below Friday's close at $0.7653.
Currency bid prices at 2:14PM (1814 GMT)
Description RIC Last U.S. Close Pct Change YTD Pct High Bid Low Bid Previous Change
Euro/Dollar EUR= $1.1359 $1.1423 -0.56% +8.05% +1.1427 +1.1355 Dollar/Yen JPY= 113.3800 112.3500 +0.92% -2.99% +113.4500 +111.9500 Euro/Yen EURJPY= 128.79 128.40 +0.30% +4.59% +128.8900 +127.8700 Dollar/Swiss CHF= 0.9639 0.9581 +0.61% -5.30% +0.9642 +0.9583 Sterling/Dollar GBP= 1.2939 1.3025 -0.66% +4.89% +1.3023 +1.2932 Dollar/Canadian CAD= 1.3001 1.2962 +0.30% -3.19% +1.3009 +1.2965 Australian/Doll AUD= 0.7651 0.7686 -0.46% +6.04% +0.7695 +0.7645
Euro/Swiss EURCHF= 1.0949 1.0949 +0.00% +2.16% +1.0956 +1.0923 Euro/Sterling EURGBP= 0.8777 0.8769 +0.09% +3.04% +0.8790 +0.8757 NZ NZD= 0.7297 0.7332 -0.48% +5.13% +0.7345 +0.7274
Dollar/Norway NOK= 8.3728 8.3454 +0.33% -3.06% +8.3765 +8.3362 Euro/Norway EURNOK= 9.5118 9.5349 -0.24% +4.69% +9.5348 +9.4909 Dollar/Sweden SEK= 8.4927 8.4274 +0.15% -6.75% +8.4936 +8.4172 Euro/Sweden EURSEK= 9.6457 9.6316 +0.15% +0.69% +9.6502 +9.6129
(Reporting by Richard Leong; additional reporting by Patrick Graham; in London; Editing by Susan Thomas and Grant McCool)