* Dollar index marks new 10-1/2-month peak
* Euro drops to fresh nine-month low vs U.S. dollar
* Greenback hits three-month peak against Canadian dollar
* Swedish crown, sterling jump after high PMI readings
(Adds Polish Foreign Minister comment on Ukraine, updates
By Daniel Bases
NEW YORK, Aug 5 The U.S. dollar extended a
broad-based rally on Tuesday after stronger-than-expected
economic data, including an 8-1/2-year high in the pace of
services sector growth and a bigger-than-expected increase in
However, some gains were trimmed back, especially against
the yen after reports emerged that Russia had gathered military
forces on its border with Ukraine. "These things are being done
just to exert pressure. Or to enter," Polish Foreign Minister
Radoslaw Sikorski told broadcaster TVN24.
Earlier, European service sector data growth was undermined
by a drop in Italy, underlining the fragile outlook for the
region. This builds expectations the European Central Bank will
pump yet more euros into the financial system to boost growth.
"Generally the dollar started off on a stronger footing this
morning and certainly the strengthening of the data has helped
that rally," said Brian Daingerfield, currency strategist at the
Royal Bank of Scotland in Stamford, Connecticut.
The euro hit a nine-month low of $1.3359, before
rebounding to $1.3375, still off 0.34 percent. The U.S. dollar
index, which measures the greenback against a basket of major
currencies, hovered near a fresh 10-1/2-month high of 81.626
The dollar traded unchanged versus the yen at 102.58 yen
. Reports of the Russian troop buildup sent investors
toward the yen, seen as a low-yielding safe-haven currency.
The Institute for Supply Management said its services index
rose to 58.7 last month, the highest since December 2005 and
above forecasts. A reading above 50 indicates expansion in the
sector. The Commerce Department report showed new orders for
manufactured goods rose 1.1 percent in June after a downwardly
revised 0.6 percent decline in May.
While the Italian numbers were disappointing, a surprise
bounce for equivalent data in Sweden and Britain lifted the
crown and the pound.
Sweden has been symbolic of Europe's flirtation with very
low inflation, or even falling prices, this year, but its
services PMI for July shocked by surging to 60.1 from 54.6 a
month earlier. The euro fell 0.35 percent to 9.2075 Swedish
"The momentum has been good in Sweden in recent months and
if inflation does begin to pick up as the Riksbank expects then
we may get back to seeing some upward potential later this
year," said Citigroup strategist Josh O'Byrne.
Sterling's gains against the greenback slipped after the
U.S. data. The Bank of England is not expected to change
monetary policy after its meeting concludes this week.
Cable was up 0.08 percent at $1.6874. The greenback
hit a three-month high against the Canadian dollar of C$1.0976.
The Australian dollar was little changed after the
Reserve Bank of Australia left interest rates unchanged at a
record low of 2.5 percent.
(Additional reporting by Patrick Graham in London, Ian Chua in
Sydney and Masayuki Kitano in Singapore; Editing by Chris Reese
and James Dalgleish)