* ECB holds rates steady, to stay low for extended period
* U.S. weekly jobless claims drop unexpectedly
* Russia-Ukraine tensions spur safe-haven yen buying
(Updates with late New York prices, adds NATO comment)
By Daniel Bases
NEW YORK, Aug 7 The euro weakened on Thursday,
undermined by the European Central Bank 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.
Positive sentiment about 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 surrounding the euro
zone's weak and uneven economic recovery.
The head of NATO called for Russia to "step back from the
brink" of war by pulling its troops back from the Ukrainian
border and warned Moscow risked further isolation.
Russian-backed rebels shot down a Ukrainian Mig-29 fighter
plan and a military helicopter on Thursday.
Early dollar strength was siphoned off by sagging U.S.
equities and a rally in U.S. Treasuries that pushed the 10-year
yield to 2.41 percent, a 10-week low.
"Fears Russia might invade put a lot of flow back into fixed
income and massive downward pressure on dollar/yen. This also
drove equities lower. Those headlines were basically pounding
both markets down today," said Boris Schlossberg, managing
director of FX strategy at BK Asset Management in New York.
In late New York trade, the euro edged off from the session
low of $1.3336, trading down 0.12 percent at $1.3365.
The dollar gave up gains on the yen made after news that
Japan's public pension fund plans to increase asset allocations
to the domestic stock market. The dollar fell 0.09 percent to
The U.S. dollar index held just below an 11-month high
reached on Wednesday.
The Bank of England also left its benchmark interest rate
unchanged at a record low 0.5 percent. Sterling fell 0.12
percent to $1.6832.
The Aussie dollar fell after an unexpected jump in
Australia's jobless rate, dropping 0.9 percent to $0.9268
, having earlier hit $0.9263, its lowest level since
(Reporting by Daniel Bases; Additional reporting by Patrick
Graham in London, Masayuki Kitano in Singapore, and Ian Chua in
Sydney; Editing by Dan Grebler and Tom Brown)