* Dollar index at near 9-month high
* Canadian dollar off 7-month low after BoC chief comments
* Dollar/yen implied volatility at 7-month low
By Hideyuki Sano
TOKYO, Oct 25 (Reuters) - The dollar held near nine-month highs against a basket of major currencies on Tuesday as solid U.S. manufacturing activity and comments from a Federal Reserve official cemented expectations of a U.S. rate hike by year-end.
The dollar's index against a basket of six major currencies .DXY =USD hit its highest level since early February, climbing to a high of 98.846, having risen 3.6 percent so far this month.
"Strong U.S. manufacturing data boosted U.S. bond yields and supported the dollar," said Shinichiro Kadota, senior strategist at Barclays (LON:BARC) Securities.
Preliminary Markit survey on Monday showed U.S. manufacturing activity levels reached a one-year high this month. to the positive backdrop for the dollar, Chicago Fed President Charles Evans said on Monday the Fed could raise rates three times between now and the end of 2017, so long as inflation expectations and the labour market continue to improve.
Evans' comments built on remarks by San Francisco Fed President John Williams on Friday and New York Fed President William Dudley on Oct. 19, both of whom hinted at a looming rate increase.
As the dollar held firm, the euro traded at $1.0870 EUR= , within a whisker from its seven-month low of $1.0859 touched on Friday.
The dollar also had an edge against the yen, standing firm at 104.37 yen JPY= , just below a 2-1/2-month high of 104.635 yen set earlier this month.
The dollar/yen's implied volatility fell sharply in the last few sessions to seven-month lows as more market players expect the currency pair to get stuck in a narrow trading range.
The one-month volatility JPY1MO= fell to 9.0 percent from around 11 percent just a week ago while the three-month volatility JPY3MO= fell to 9.7 percent from above 11 percent.
While there are potentially market-moving events next week such as policy meeting by the Federal Reserve and the Bank of Japan, many investors are also looking closely to the U.S. presidential election on Nov. 8.
Recent polling that shows Hilary Clinton leading Donald Trump prompted market players to price out the chance of a victory by Trump, whose stance on protectionist trade measures has been seen as a risk to the world's economy.
The Mexican peso MXN=D2 , seen as the most vulnerable to a Trump victory, held firm near six-week highs hit last week, with its implied volatilities MXNVOL= also falling.
Elsewhere, the Canadian dollar CAD=D4 traded at C$1.3347, recovering from seven-month low of C$1.3398 touched on Monday.
Bank of Canada Governor Stephen Poloz said on Monday that a further easing from the Bank of Canada would bring the central bank closer to unconventional monetary policy and the decision on whether to cut rates again is not one to take lightly. by Shri Navaratnam)