ISM kicks off the dollar's big week

A look at the day ahead in European and global markets from Tom Westbrook

Today's U.S. ISM manufacturing survey is the first major indicator out in a big week for U.S. data and, likely, the dollar.

Investors and the Federal Reserve are looking for reassurance that the path is clear to cut interest rates, and to gauge how quickly to cut. Traders have recently pared expectations for a 50-basis-point cut this month, and the dollar has steadied after a two-month selloff.

Economists see the ISM at 47.5, an improvement from the previous month but still in contractionary territory below 50. The job market is seen adding 160,000 jobs and the jobless rate ticking down to 4.2%.

Surprises on the low side will likely have the dollar testing recent lows, though in Asia caution and short covering had the dollar extending its recent rebound.

Asian currencies had rallied particularly strongly in anticipation of U.S. rate cuts giving regional economies more room to ease policy themselves and encourage growth.

Data in the Asia session showed Australian government spending rose in the June quarter, prompting National Australia Bank to upgrade its forecast for Wednesday's gross domestic product figure. South Korean inflation slowed to a three-and-a-half-year low, paving the way for imminent rate cuts.

In company news, Cathay Pacific cancelled flights while it inspected its Airbus A350 fleet following the failure of a Rolls Royce engine component.

And in Japan, a senior finance ministry official pushed back at speculation retail giant Seven & i Holdings was seeking national security classification to fend off a buyout bid from Canada's Alimentation Couche-Tard.

Key developments that could influence markets on Tuesday:

Economics: U.S. ISM manufacturing PMI

(By Tom Westbrook; Editing by Christopher Cushing)