Dollar steadies after data knocks it off two-yr highs

LONDON, Oct 02 (Reuters): The US dollar edged higher on Wednesday after disappointing manufacturing data had whacked the greenback off two-year highs, while the euro clung to levels above $1.09.

US manufacturing contracted at the fastest pace in more than a decade in September, making the United States the latest country to suffer a manufacturing downturn amid a trade war between Washington and Beijing.

Many analysts, however, say the setback for the dollar will likely prove temporary given its higher yield versus peers and the relative strength of the US economy - non-farm payrolls data due on Friday should give some more insight into the health of the US economy.

"Yes US manufacturing is disappointing but it's no more disappointing than the euro zone PMIs (Purchasing Managers' Index surveys) we saw," said Michael Hewson, analyst at CMC Markets, referring to weak surveys in the euro area released this week.