Dollar slides broadly on easing growth fears

NEW YORK (Reuters) - The dollar slipped against major currencies on Thursday as better-than-expected U.S. data on housing and jobless claims boosted risk appetite, though investors remained cautious ahead of a key U.S. jobs report.

The euro was supported by healthy results in Spanish and French bond auctions and after the European Central Bank raised economic growth forecasts. But President Jean-Claude Trichet said risks were to the downside and the recovery would be moderate.

The ECB left interest rates unchanged at 1 percent, as expected, and extended its liquidity safety-net on worries about vulnerable banks. The decision and following remarks by Trichet were seen as positive but had limited impact on the euro.

The focus turns to Friday's monthly U.S. employment report, with analysts predicting nonfarm payrolls fell for a third straight month in August.

"The FX market has been quite slow today and volumes have been low because investors are anticipating tomorrow's U.S. payrolls and they don't want to push risk too far either way before the release of the number," said Amelia Bourdeau, director of G10 FX strategy at UBS Securities in Stamford, Connecticut.

A scarcity of jobs threatens to derail a fragile recovery. A weak employment report would be further confirmation of deterioration in the economy, which could cause investors to favor government bonds, pushing benchmark yields -- and the dollar -- even lower.

Low yields have contributed to weakness in the greenback recently, with many investors selling dollars in favor of other safe-haven currencies such as the Swiss franc and the yen in reaction to negative U.S. news.

Richard Franulovich, senior currency strategist at Westpac Banking Corp in New York, said he expects the jobs number to initially weigh on risk appetite, which could spark weakness in the euro against the dollar. But he added that market attention will soon shift to focus on the outlook for U.S. monetary policy.

"If the payrolls are weak it means the economy is weak and the market will anticipate quantitative easing from the Fed," he said.

In late afternoon trading in New York, the ICE Futures U.S. dollar index, which tracks the greenback versus a basket of six currencies, fell 0.14 percent to 82.411 .DXY.

The euro was flat at $1.2817, gaining support after Spain and France drew decent demand as they sold a combined 12.2 billion euros in bonds.

The next target for the euro was around $1.2873 -- a 38.2 percent Fibonacci retracement of its fall from its August peak around $1.3334 to its August low near $1.2588. The target after that would be $1.2923, touched on August 18.

In the United States, reports showed an unexpectedly strong reading on pending home sales and a drop in weekly jobless claims, helping dampen fears the economy could face a double dip recession.

Upbeat U.S. and Chinese manufacturing data on Wednesday had lured investors away from perceived safe-haven assets, lifting stocks, commodities and higher-yielding currencies.

"With so much uncertainty, the market is very volatile and moves depend on the daily data flow," said Lee Hardman, currency economist at Bank of Tokyo-Mitsubishi UFJ.

The dollar was down 0.2 percent at 84.23 yen, close to a 15-year low of 83.58 yen hit on electronic trading platform EBS last week. The yen showed limited reaction to Japan's political heavyweight Ichiro Ozawa saying action was needed to stem yen gains.

The Swedish crown rose to its highest in more than two years against the euro after Sweden's central bank raised its key interest rate to 0.75 percent, as expected. [ID:nSAT008761] It also left its forecasts for interest rates unchanged from July, helping to lift the crown. The Riksbank was also upbeat on the economy. [ID:nLDE6810FC] (Additional reporting by Vivianne Rodrigues, Nick Olivari and Steven C. Johnson; Editing by Dan Grebler)