* Dollar index drops as low as 78.111, lowest this year

* Aussie climbes to 10-mth high and sterling hits 9-mth peak

* Euro reverses gains to 2-month high

* Market awaits a slew of U.S. economic data

By Satomi Noguchi

TOKYO, Aug 3 (Reuters) - The dollar hovered near its lowest point this year against a basket of currencies on Monday after higher oil prices, steady global stock markets and U.S. GDP data boosted investments in riskier assets.

In early Asian trade, the greenback hit its lowest level since December against the currency basket while the commodity-linked Australian dollar rose to a 10-month high versus the dollar, helped partly by oil prices holding firm around $70 a barrel after jumping nearly 4 percent late last week.

Commodity prices rose on Friday as data showing U.S. gross domestic product for the second quarter fell at a 1.0 percent annual rate, below analysts' expectations for a 1.5 percent drop, raising hopes that fuel demand would recover.

The dollar's slide was driven largely by technical factors such as stop-loss buying in sterling, which hit its highest level in nine months, traders said.

But once the dollar's sell-off had run its course, investors took a wait-and-see approach before a batch of U.S. economic data due out this week, starting with the Institute for Supply Management's manufacturing index for July later in the day.

"Ahead of many events this week such as economic data in the U.S. and earnings from major companies in Europe and Japan, investors largely stayed on the sidelines," said Yuji Saito, head of the forex sales department at Societe Generale.

"As long as the market will be able to cope with those economic events, it will likely keep its risk-taking stance," he said.

The biggest market focus will be Friday's U.S. job reports as the U.S. economy appears to be picking up steam even without its strongest engine -- consumer spending.

Masafumi Yamamoto, head of FX strategy for Japan at Royal Bank of Scotland, said the Aussie would rise further against the dollar and the yen this week if the U.S. data adds to hopes for an economic recovery.

But Yamamoto also said in his note to clients that further gains in the euro were hard to see with caution ahead of more earning reports from European banks this week.

The euro quickly reversed earlier gains to a two-month peak against the dollar in choppy trade as Japanese exporters sold the euro to repatriate overseas earnings, traders said.

HSBC, Europe's biggest bank, and Barclays are scheduled to report half-year results later in the day followed by Standard Chartered on Tuesday and Lloyds Banking Group on Wednesday.

Results from major European banks are expected to be buoyant after a strong recovery in capital markets activity this year, but losses on mortgages and commercial loans will weigh on the retail parts of the businesses, analysts predict.

The dollar index, a gauge of the U.S. currency's performance against six other major currencies, fell as low as 78.111, the lowest since mid-December, before recovering to trade at 78.352, near flat from late New York trade on Friday.

The Australian dollar climbed as high as $0.8394 on the Reuters dealing system, the highest since late September.

Traders said the Aussie was being supported by expectations that the Reserve Bank of Australia may drop a key reference on monetary easing at its policy meeting on Tuesday while keeping the cash rate unchanged at 3 percent.

The euro fell 0.1 percent to $1.4248 after rising as high as $1.4310 on trading platform EBS, its highest since early June.

Sterling jumped as high as $1.6780, its highest in nine months, before stabilising at $1.6730, up 0.1 percent on the day.

Against the yen, the euro was down 0.2 percent at 134.88 yen after falling as low as 134.78 on EBS from the day's high of 135.44 yen. The dollar was also unchanged at 94.75 yen. (Additional reporting by Masayuki Kitano, Kaori Kaneko; Editing by Chris Gallagher)

The Foreign Currency Exchange is a stable industry that experiences alterations because of the deviations in the foreign currency conversion rates. You should learn forex from the experience of others. While you aim to study everything out of your forex trading you will not actually recognize how others are creating profits.
To achieve something, you have to continually deal with trade in the forex market. You got to begin and end your trade with respect to the market information and the existing trends at the time of your decision making. Do not stay long expecting the value of the currency to increase to your expectation. It might not work out always. It is better to fix yourself with the market trends.
· Get an idea of the stop loss decision based on the existing situation while you trade. Do not initiate trading while there is a deficiency in liquidity.
· Get an idea of the separate trading systems for the high markets and the low markets. Don’t simply work with just a single trading strategy. Bring out your strategy with a focus and navigate per the market situation.
· Considering the market trend and other factors work in accordance with what your mind states. Decide accordingly on when things are likely bad and which they are right for the trade.
· Differentiate between rumors and real facts in the market. Make your buy and sell decisions accordingly.
· Begin trading after the market has gotten hot in for the day and end your trade before the end of the trading day.
· When it is an over buying of currencies you got to consider ending your trade. Do not do what others are doing all the time. When it is a bull market and the hike is too much it will for sure come down. With changeable foreign currency exchange rates, nothing is going to be steady.