March 3, 2016 / 12:33 AM / a year ago

Dollar falls against euro on worries over U.S. labor market

U.S. one-hundred dollar bills are seen in this photo illustration at a bank in Seoul August 2, 2013.Kim Hong-Ji

NEW YORK (Reuters) - The U.S. dollar was set to post its biggest one-day percentage decline against the euro in more than three weeks on Thursday after data showing a decline in U.S. service sector employment added to worries over Friday's monthly U.S. jobs data.

The euro rose to a nearly one-week high against the greenback of $1.0972, rebounding from a more than one-month low of $1.0823 Wednesday and putting the dollar on track for its biggest daily percentage loss against the euro since Feb. 9.

The Institute for Supply Management (ISM) said its employment index fell to 49.7 in February from 52.1 a month earlier, marking the first fall in service-sector employment since February 2014.

The data intensified concerns about the U.S. labor market and further dampened expectations the Federal Reserve would hike interest rates any time soon, analysts said. Fed hikes are expected to boost the dollar by driving investment flows into the United States.

"The data this morning was weak enough to add a touch of concern to the market," said Jason Leinwand, managing director at Riverside Risk Advisors in New York. "The market is definitely leaning away more and more from the prospects of a Fed hike this year."

A woman counts Japanese 10,000 yen notes in Tokyo, in this February 28, 2013 picture illustration.Shohei Miyano

Economists polled by Reuters expect U.S. employers to have added 190,000 jobs last month.

In addition to the ISM data, analysts said traders were repurchasing the euro after betting against or "shorting" the currency. Uncertainty over whether the European Central Bank would weaken the euro by announcing a larger stimulus plan next week led to the reversal in short bets, analysts said.

"People reduced expectations that the ECB is going to be so dramatic next week with their policy decision,” said Greg Anderson, global head of FX strategy at BMO Capital Markets in New York.

The dollar index, which measures the greenback against a basket of six major rivals, hit its lowest level in nearly a week, at 97.460 .DXY.

The dollar held its ground against the yen and was last up 0.07 percent at 113.53 yen JPY=. The dollar was last down 0.53 percent against the Swiss franc at 0.9905 franc CHF=.

On Wall Street, the benchmark S&P 500 .SPX stock index was last up 0.11 percent.

Additional reporting by Anirban Nag in London; Editing by Bernadette Baum and Chris Reese

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