Dollar posts largest daily gain in five months on upbeat data

NEW YORK Thu Jan 2, 2014 4:11pm EST

1 of 3. Two Euro coins are seen after beeing minted in the Austrian Mint (Muenze Oesterreich) headquarters in Vienna June 20, 2013.

Credit: Reuters/Leonhard Foeger

NEW YORK (Reuters) - The dollar rose to a two-week high on Thursday as a slew of generally positive U.S. economic data reinforced expectations the Federal Reserve will continue to move away from its bond purchases.

The greenback also posted its largest daily gain in five months against a basket of currencies.

U.S. factory activity held near a 2-1/2-year high in December and the number of Americans filing new claims for jobless benefits fell again last week, suggesting the world's largest economy was on stable footing

U.S. construction spending hit its highest level in nearly five years in November.

Against a backdrop of a firming jobs market and brightening economic outlook, the Fed said in December it would reduce its monthly $85 billion bond buying program by $10 billion starting in January.

"This year is America's time to shine and based on the latest economic reports, the U.S. economy is indeed outperforming the market's expectations," said Kathy Lien, managing director, at BK Asset Management in New York.

The dollar index, a gauge of the greenback's value against six major currencies, rose 0.7 percent on the day to 80.631 .DXY, its largest one-day gain in five months. The index hit a high of 80.709, its strongest level since December 20.

The U.S. dollar hit a high of 105.44 yen, its strongest level versus the Japanese currency since October 2008, before erasing gains to trade down 0.5 percent at 104.71 yen.

Japanese financial markets are closed Thursday and Friday for the New Year's break.

BK's Lien said the rally in the dollar against the yen has been slow, but as long as the currency pair holds above 104, the uptrend remains intact.

The euro, meanwhile, fell 0.7 percent against the dollar to $1.3654, touching a two-week low of $1.3628.

Europe's common currency was the strongest-performing major currency in 2013, but historically has tended to weaken at the start of a calendar year.

Euro zone manufacturing grew at the fastest rate since mid-2011 in December on brisk business in Germany and Italy, setting the stage for a solid start to the year after a tumultuous 2013, a survey showed on Thursday.

Volumes were low in late December and prices driven by factors such as euro zone banks repatriating funds to shore up their capital bases before the European Central Bank's year-end review of their assets, which supported the euro.

Few analysts expect the ECB, which holds a policy meeting next week, to change interest rates in the near future.

Against the yen, the euro fell 1.4 percent to 143 yen, its worst daily performance since early November.

(Additional reporting by Julie Haviv; Editing by Meredith Mazzilli)