FOREX-Risk-on trade pulls dollar higher

* U.S. leading economic indicators better than expected

* German and eurozone flash PMIs beat expectations

* China PMI shows mixed picture, fails to excite markets

* Kiwi falls 1.25 percent, dented by benign inflation data (Recasts with U.S. data, comment, changes dateline from LONDON)

By Daniel Bases

NEW YORK, Oct 23 (Reuters) - The dollar rallied on Thursday as investors plowed cash back into riskier asset classes, with an underpinning of promising data from the United States and better-than-expected manufacturing data in Europe and China.

The dollar was up 0.14 percent against a basket of major currencies, trading at 85.806. It benefited from both rising U.S. Treasury yields, which illustrated an easing of investor concerns after last week's phalanx of selling, and a continuing U.S. equities rally.

On the data front, the Conference Board's U.S. Leading Economic Index increased 0.8 percent in September after being flat in August, pointing to solid economic growth for the remainder of the year. New claims for U.S. unemployment benefits rose last week, but the underlying trend remained consistent with a firming labor market, data showed on Thursday.

"When bond investors were panicking, that took everyone down," said Boris Schlossberg, managing director of currency strategy at BK Asset Management in New York. "Now (NYSE: DNOW - news) that the fixed income market seems more content and yields are escalating, that is helping the dollar rally and is a vote of confidence in the U.S. economy."

Benchmark 10-year U.S. Treasury yields rose to 2.27 percent as investors sold out of the safe-haven asset.

"Dollar/yen is nicely rallying as a reversal of the carry trade is underway," said Sebastian Galy, senior currency strategist at Societe Generale (Paris: FR0000130809 - news) in New York. "So the risk-on trade is here as investors search for yield in a stronger performing U.S. economy."

The dollar rose nearly 1 percent to 108.17 yen. The euro climbed nearly 1 percent to 136.82 yen

The euro pulled up from a two-week low against the dollar earlier on Thursday, helped by the pick-up in eurozone business growth, but traded near the unchanged mark at $1.2647.

Gains for the euro could be fleeting amid continued expectations of more monetary easing and concerns over the health of the European banking sector.

An improvement in purchasing managers' surveys in Europe and China eases some worries about the outlook for those two key economies. Still, news that companies in the eurozone cut prices at the steepest rate in almost five years will be of concern to the European Central Bank, which is striving to ward off the risk of deflation in the region.

"Europe's PMI data was better than expected, but it helps keep the euro from going down, not serve as an impetus for a rally," said Schlossberg. "The message of the data today is that the best you can get out of Europe is stabilization."

The New Zealand dollar fell 1.24 percent to $0.7828 after softer-than expected inflation data that could give the Reserve Bank of New Zealand room to further delay its next interest rate hike. (Additional reporting by Anirban Nag in London, Masayuki Kitano in Singapore and Shinichi Saoshiro in Tokyo.; Editing by Catherine Evans and Lisa Von Ahn)