* ECB holds rates steady, to stay low for extended period
* U.S. weekly jobless claims drop unexpectedly
* Sources say Japan GPIF to boost stock allocation to over
* Yen slips as Tokyo shares push higher on the GPIF report
(Updates with U.S. weekly jobless claims, ECB press conference;
changes dateline; previous LONDON)
By Daniel Bases
NEW YORK, Aug 7 The euro weakened on Thursday,
undermined by the European Central Bank's saying it would leave
interest rates unchanged at record lows and that the fragile
economic recovery will keep the loose policy in place for an
The ECB's decision was not unexpected by the market, and it
heightened the contrast in monetary policy, with the euro zone
moving toward easing and the United States moving toward
tightening on an improving economic outlook.
The positive sentiment on the U.S. economy was helped by
better-than-expected weekly U.S. jobless claims.
Since May, the euro has dropped 4.6 percent against the
dollar, hitting a 9-month low of $1.3333 on Wednesday.
"Nothing really has changed here with the ECB and since
that's the case, we're simply consolidating the prices," said
Marc Chandler, global head of currency strategy at Brown
Brothers Harriman in New York.
"The bigger risk in the market is the downside for the euro.
I think it bears out Draghi's point in that the market already
accepts (Europe's) economic recovery is fragile, moderate and
uneven," he added, referring to comments from ECB President
Mario Draghi earlier on Thursday.
Following the bank's monetary policy meeting, Draghi said
the Ukraine crisis has added to risks of the euro zone's weak
and uneven economic recovery.
In mid-morning New York trade, the euro touched a session
low at $1.3336, off 0.30 percent on the day.
The greenback rebounded from Wednesday's 1-1/2 week low
against the Japanese yen, which sagged on news that Japan's
public pension fund plans to increase allocation to the domestic
stock market. The dollar rose 0.24 percent to 102.34 yen.
After a bullish month of trading that raised expectations of
a longer-lasting rally, the greenback was just below 11-month
highs against a trade-weighted basket of major
YEN AND AUSSIE FALL
The yen, attractive for investors seeking shelter from
growing tensions between the West and Russia, weakened as Tokyo
shares pushed higher. Sources told Reuters that Japan's
Government Pension Investment Fund plans to put over 20 percent
of its funds in domestic stocks. That compares with a current 12
Gains in equities tend to weigh on the safe-haven yen, as
investors target riskier assets on expectations of making bigger
"It is that news on the GPIF that has moved dollar-yen this
morning," said Daragh Maher, a currency strategist with HSBC in
London. "We had some peculiar price action late yesterday that
is also being retraced, but the GPIF story gave a fundamental
rationale for the push higher."
The Aussie fell after unexpected jump in Australia's jobless
rate, dropping 0.9 percent to $0.9268, having earlier
hit $0.9263, its lowest level since early June.
(Reporting by Daniel Bases; Additional reporting by Patrick
Graham in London, Masayuki Kitano in Singapore, and Ian Chua in
Sydney; Editing by Dan Grebler)