FOREX-Dollar hits 4-month high as strong U.S. data contrast UK, euro zone weakness

* Dollar rises to highest since March 10

* Monetary divergence between Fed, other central banks seen

* Pound falls almost 1 percent after drop in PMI indexes

* Euro hits lowest since Brexit vote (Updates to U.S (Other OTC: UBGXF - news) . market close)

By Dion Rabouin

NEW YORK, July 22 (Reuters) - The dollar index rose to a more than four-month high on Friday as positive U.S. data and weak readings from overseas prompted investors to re-evaluate the likelihood of a rate increase from the U.S. Federal Reserve while other central banks are seen cutting rates or adding stimulus.

The rise gave the index, which measures the greenback against six major world currencies, its fifth straight weekly gain.

The returning prospect of monetary policy divergence between the Fed and its global peers has buoyed the dollar in recent weeks.

On Friday, the U.S. flash Markit (NasdaqGS: MRKT - news) purchasing managers' index, a preliminary survey of executives who make spending decisions at major firms, rose to its highest level in a year, surpassing economists' expectations.

While in Britain, the same metric fell by the most in its 20-year history, prompting UK officials to say more easing could be imminent. In the euro zone, the purchasing managers' index showed its lowest reading since January 2015.

"In the United States, fundamentally, economically speaking, indicators have shown consistency and steadiness," said Juan Perez, currency strategist at Tempus Inc in Washington. "And what we're seeing post-Brexit is that the fundamentals of manufacturing and services in the euro zone and the UK are at peril. That's why finally you're seeing this type of reaction."

The dollar index rose 0.5 percent, touching a high of 97.487, its highest since March 10.

The euro fell to its lowest level against the dollar since the day after the June 23 Brexit vote, taking another leg down after a shooting in Munich that left multiple people dead . It was last down 0.6 percent to $1.0962.

Sterling was the biggest mover among major currencies. It fell 1 percent against the dollar to $1.3099.

Marc Chandler, chief global currency strategist at Brown Brothers Harriman & Co, also pointed out that readings on U.S. inflation, industrial production, retail sales and employment since the Brexit vote have all beaten expectations. He said that was a leading cause for investors to price back in chances of a rate hike by the Fed.

Fed funds futures rates show investors see almost a 50-percent chance the U.S. central bank raises overnight interest rates by its December meeting, according to CME Group (Kuala Lumpur: 7018.KL - news) 's FedWatch tool, compared with less than a 20-percent chance just weeks ago.

The dollar also rose against the yen, moving back above 106 yen per dollar. It was last up 0.35 percent at 106.16 yen. (Reporting by Dion Rabouin; Editing by Bill Trott and Grant McCool)