* U.S. data reflects economic recovery gathering pace
* Euro hits two-week low vs dollar after strong 2013
* Global manufacturing ended 2013 on strong note
* Euro falls after asset quality snapshot
By Julie Haviv
NEW YORK, Jan 2 The dollar rose against the euro
on Thursday as an array of improving U.S. economic reports
supported expectations that the Federal Reserve will gradually
scale back its bond purchases.
The euro was the strongest-performing major currency in
2013, but historically has tended to weaken at the start of a
calendar year. The single currency dropped to a two-week low of
$1.3628 before paring losses to last trade 0.6 percent lower at
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 0.3 percent at 104.94 yen.
Japanese financial markets are closed Thursday and Friday
for the New Year's break.
The dollar should continue to benefit from an improving U.S.
A gauge of 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 for a second week last week, pointing to
resilience in the economy.
Other data on Thursday showed construction spending hit its
highest in nearly five years in November.
"The U.S. dollar has started the year with strength, and a
shift in market dynamics suggests the dollar may continue to
gain versus the euro and other counterparts," said David
Rodriguez, quantitative strategist at DailyFX in New York.
"Forex volatility prices and rising U.S. Treasury yields
keep us focused on dollar gains," he said.
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
Global manufacturing ended 2013 on a strong note, as major
exporters like the United States, Japan and Germany all saw
demand pick up, although China's performance remained modest,
surveys showed on Thursday.
U.S. manufacturing activity grew in December at its swiftest
pace in 11 months and the rate of job growth was the strongest
since March, according to Markit's Purchasing Managers' Index.
Other U.S. economic figures, including construction spending
and the Institute for Supply Management's purchasing managers'
survey, also pointed to steady gains in the world's largest
A Reuters poll of economists taken in mid-December forecast
annualized first-quarter economic growth of 2.5 percent,
reaching 3 percent by year-end. Since then, economic data has
tended to exceed forecasts.
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.
"Last week the market was mainly determined by position
rescaling," said Ulrich Leuchtmann, head of currency research at
Commerzbank in Frankfurt.
"Today is the first day when fundamentals work out again ...
That's why there is pressure on euro/dollar."
While few analysts expect the ECB, which holds a policy
meeting next week, to change interest rates in the near future,
the Fed is closely monitoring the strength of the U.S. recovery
to gauge the pace at which it scales back its bond-buying.
"The sensitivity to surprises in data in the euro zone is
much lower than the sensitivity to surprises in the data in the
U.S." Leuchtmann said.
But it offered little sustained support for the single
currency, which was down 1 percent against the yen at 143.38
yen, according to Reuters data.