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FOREX-Dollar up as selloff pauses, inflation key focus

* Dollar selloff pauses on position squaring

* Benign inflation seen likely to weigh on greenback (Updates with U.S. market open, adds data, quotes, changes dateline, previous LONDON)

NEW YORK, Oct 16 (Reuters) - The U.S. dollar was slightly stronger on Monday as investors repositioned after disappointing inflation data on Friday sent the greenback to its lowest levels in more than two weeks.

Consumer price data on Friday showed still benign inflation, disappointing investors who had expected it to improve.

That came after minutes from the Federal Reserves September meeting released on Wednesday showed that Fed policymakers had a prolonged debate about the prospects of a pickup in inflation and the path of future interest rate rises if it did not.

Weve got a lot of negative news priced in, said Mark McCormick, North American head of FX strategy at TD Securities in Toronto. What were seeing today is just a little bit of a reversal.

The dollar index against a basket of six major currencies rose 0.13 percent to 93.215. It fell to 92.75 on Friday immediately after the consumer price data, the lowest since Sept. 26.

Were just seeing some squaring up of positioning now, well probably see it for the next day or two and then I think well focus a bit more back on the negative U.S. outlook, McCormick said.

The dollar hit intraday highs on Monday after an U.S. index of business conditions rose to a three-year high.

Fed Chair Janet Yellen on Sunday reaffirmed the U.S. central banks commitment to raising rates, even after the disappointing inflation data.

The U.S economy remains strong and the strength of the labor market calls for continued gradual increases in interest rates, Yellen said.

Traders expect the Fed to raise rates at its December meeting, but are less bullish on further increases next year, even as Fed projections show that three additional rate hikes are likely in 2018.

U.S. data surprises have started to accelerate a little bit, but the big key is U.S. inflation surprises have been underperforming the rest of the world, said McCormick.

The euro was also weaker after the Austrian election put conservative Sebastian Kurz is on track to become the next leader. He is seen as likely to seek a coalition with the resurgent far right because his party is far short of a majority.

The Spanish government also said that Catalan authorities must drop a bid for independence by Thursday, moving closer to imposing direct rule over the region after its leader missed an initial deadline to back down.

(Additional reporting by Saikat Chatterjee in London; Editing by Bernadette Baum)