April 24, 2008 / 8:10 PM / 9 years ago

FOREX-US dollar gains on economic data; euro slides

(Recasts; updates prices, adds comments)

NEW YORK, April 24 (Reuters) - The U.S. dollar rose across the board on Thursday after U.S. government data showed resilience in the labor market, while a key measure of business sentiment in Germany plunged undermining the euro.

The euro's fall followed a rally to a record $1.60 on Tuesday, the highest level since the euro's inception in 1999, as investors bet the European Central Bank would raise interest rates to restrain inflation.

But ECB policy-makers' comments on excess volatility in euro trading combined with weak economic growth data this week, triggered a sell off in the currency, analysts said.

"Now that we tried and failed to stay above $1.60 in euro/dollar, it looks like we're coming back to the bottom," said Brian Dolan, head of research at consultancy Forex.com, in Bedminster, New Jersey. "The U.S. data today is pretty clearly dollar positive and we're coming off some weaker European data."

The number of U.S. workers filing initial claims for unemployment benefits unexpectedly fell last week, the government said. For details, see ID:[nN23369389].

In Germany, a reading on business sentiment showed the biggest monthly fall since September 2001. The headline Ifo index fell to a much lower-than-expected 102.4 in April, its lowest since January 2006.

In late trading in New York, the euro was down 1.3 percent at $1.5676 EUR=, more than 3 cents below Tuesday's record high and its lowest in at least two weeks.

Upside potential in euro/dollar is now "quite limited," Manuel Oliveri, a currency analyst at UBS AG in Zurich said in a research note. The bank forecasts the euro will trade at $1.55 in one month and at $1.47 in three months.

Against the Japanese yen, the euro was also down 0.4 percent at 163.60 yen EURJPY=, while the dollar was up 1.0 percent at 104.34 yen JPY=.

The Ifo, coupled with a slump in the euro zone manufacturing purchasing managers index to levels nearly implying an economic-contraction on Wednesday, suggested that the euro zone may not be immune to a U.S.-led economic slowdown.

The data poured cold water on expectations of an ECB interest rate rise this year, which had been fueled by recent comments ECB policy-makers. ECB President Jean-Claude Trichet said on Thursday that there is concern about the impact of currency fluctuations on financial stability.

"If anyone was (betting) on a rate hike sometime this year from the ECB, the Ifo would have certainly reduced the chances," said Adarsh Sinha, currency strategist at Barclays Capital in London.

The dollar was also up 1.0 percent as measured by the New York Board of Trade's index of six major currencies at 72.535 .DXY at Wednesday's close.

The dollar's gains come as investors look closely at whether the Federal Reserve might be ready to pause in its aggressive run of interest rate cuts after an expected quarter-percentage-point cut in the fed funds rate next week to 2.0 percent.

The U.S. central bank has cut 3.0 percentage points from its benchmark fed funds rate since last September in an effort to stave off recession.

A report on weak new U.S. home sales in March failed to provide lasting clues on the outlook for interest rates, analysts said.

"I don't think the market view (on the U.S. rate outlook) will change dramatically just on this number," said Matthew Strauss, senior currency strategist at RBC Capital Markets in Toronto. (Additional reporting by Steven C. Johnson and Lucia Mutikani in New York and Toni Vorobyova in London) (Reporting by Nick Olivari and Vivianne Rodrigues)

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