* Solid U.S. data underpins dollar
* Dollar headed for strongest month since February
* Dollar rises vs yen after BOJ keeps QE intact (Updates to afternoon U.S. trading, adds economic data, analyst's quote)
NEW YORK, Oct 31 (Reuters) - The dollar edged higher on Tuesday, underpinned by solid U.S. data, and headed toward its strongest monthly performance since February.
The greenback touched its highest level of the day against a basket of major currencies in early trading following the concurrent release of U.S. and Canadian data showing solid labor costs for the United States and disappointing growth and inflation readings for its northern neighbor.
U.S. consumer confidence rose to a nearly 17-year high, housing price data was solid and the Chicago purchasing managers index exceeded expectations, showing the economy continued to expand.
However, the dollar was unable to hold onto solid gains for the day as investors were wary of making big bets ahead of upcoming central bank meetings by the Bank of England and the U.S. Federal Reserve, as well as economic data due to be released later this week featuring the U.S. nonfarm payrolls report.
"There's a lot of moving parts to the market this week," said Shaun Osborne, currency strategist at Scotia Bank in Toronto, pointing to the central bank meetings, data and the expectation that U.S. President Donald Trump will announce his choice to lead the Federal Reserve on Thursday.
Market participants were also anxiously watching developments in the investigation by a special counsel of possible connections between Trump's 2016 election campaign and Russia. Former Trump campaign manager Paul Manafort and a business associate were charged as part of the inquiry and former campaign adviser George Papadopoulos pleaded guilty to lying to federal agents.
Further, the dollar has benefited from expectations of Trump's campaign trail promises of a "massive" U.S. tax cut, in which analysts and investors are beginning to lose confidence.
"Theres a perception that the dollars gains have gone too far in advance of the tax reform bill and the expectation that the tax reform bill does fall through on the basis of political infighting is pretty high," said Karl Schamotta, director of FX strategy and structured products at Cambridge Global Payments.
"Theres so much drama going on in the USD and its all about the T-R-U-M-P."
The dollar did manage a sizeable gain against the yen after the Bank of Japan kept its monetary policy steady on Tuesday, as widely expected, while slightly lowering its inflation forecast for the current fiscal year.
The dollar was last up 0.45 percent against the yen to 113.68 yen. It earlier fell to its lowest since Oct. 20. (Reporting by Dion Rabouin; editing by Grant McCool)