* Dollar falls vs yen on U.S. data, emerging market jitters
* Euro recovers from two-month low vs dollar
* Expectations grow of euro zone quantitative easing
By Richard Leong
NEW YORK, Feb 3 The dollar fell to a two-month
low against the safe-haven yen on Monday on persistent jitters
over troubles in emerging markets and as surprisingly weak
domestic manufacturing data spurred worries about U.S. economic
The latest omen about slowing U.S. growth raised bets the
Federal Reserve might refrain from a further reduction in its
bond purchase stimulus, analysts said.
The U.S. central bank last week voted to reduce its monthly
purchases of Treasuries and mortgage-backed securities by $10
billion to $65 billion, following a $10 billion reduction in
"Markets were keyed for a strong manufacturing report, and
they got slammed, and the dollar along with them, as January's
ISM survey at 51.3 showed this leading sector far weaker than
expected," said Joseph Trevisani, chief market strategist at
WorldWideMarkets Online Trading in Woodcliff Lake, New Jersey.
The Institute for Supply Management on Monday said its index
of U.S. factory activity fell to 51.3 last month, the lowest
level since last May, from a recently revised 56.5 in December.
The most alarming aspect of the report was the new orders
component, which recorded the largest monthly drop in 33 years.
Wall Street stocks also sold off on the data. The dollar
shed 0.9 percent against the yen to 101.07 yen, which was its
lowest level since late November.
Against a basket of major currencies, including the yen, the
dollar lost 0.2 percent at 81.103, wiping out Friday's
The euro, in reaction to the disappointing U.S. factory
data, recovered from a two-month low against the greenback. The
single currency earlier fell against the dollar as expectations
grew that the European Central Bank might make an aggressive to
combat deflation when it meets on Thursday.
With the ECB's main interest rate already at a record low
0.25 percent, some analysts expect the central bank will start
buying sovereign bonds to loosen monetary conditions -- similar
to the Fed's quantitative easing program -- to avert a downward
price spiral that could cripple an economy for years.
"What really matters is deflation," said Hans Redeker, head
of global currency strategy at Morgan Stanley in London. "The
euro is going to find it very difficult to hold its value."
On Friday, data showed a surprise drop in euro zone
inflation for January to 0.7 percent year-on-year. Analysts had
expected prices to rise 0.9 percent.
Earlier, the euro fell against the dollar on speculation
about ECB action, hitting its weakest level against the
greenback since late November before rebounding. It last traded
up 0.2 percent at $1.3514.
Against the yen, the single euro zone currency held near a
two-month trough at 136.80 yen, and it dropped to its lowest
level against the Swiss franc in more than six weeks,
at 1.2189 franc.
A sharp sell-off in emerging currencies in recent days has
supported the yen broadly, fueling its revival after a dismal
2013 that stemmed partly from the Bank of Japan's bold measures
to stimulate the country's economy.
With trading volumes still subdued after Friday's Lunar New
Year holiday in Asia, investors were awaiting the U.S. payrolls
data for January, set for release on Friday, to judge whether
the Fed would taper further. Job gains in December were
unexpectedly weak, which analysts downplayed due to inclement
If the Fed keeps cutting back its bond-buying program, it
will likely encourage investors to pull money from emerging
markets and to put it into U.S. bonds.
Among some of the recent battered emerging-market
currencies, the Russian ruble held near a five-year low
against the dollar, last trading at 35.42 ruble per dollar.
The South African rand weakened to 11.19 rand against
the greenback, bringing its year-to-date decline versus the
dollar to 7.4 percent.