March 10, 2017 / 2:58 PM / 3 years ago

FOREX-Dollar hits 3-week low vs euro as U.S. wage data disappoints

* U.S. wages rise less than expected in February

* Dollar index hits lowest level in nearly a week

* Dollar pares gains vs yen after touching 7-week high (Updates to U.S. market open, adds jobs report data, quote, changes dateline, previous LONDON)

By Dion Rabouin

NEW YORK, March 10 (Reuters) - The dollar fell on Friday after a report showed U.S. wages rose less than expected in February and tempered expectations for a spate of interest rate increases.

The Labor Department’s non-farm payrolls report showed employers added 235,000 jobs last month, beating expectations for 190,000.

However, average hourly earnings missed expectations, rising by only 0.2 percent last month, leading markets to price in a slower pace of rate hikes, analysts said.

“It’s a very solid report; however, the dollar has failed to appreciate given how market expectations were sky-high for a robust report,” said Joe Manimbo, senior market analyst at Western Union Business Solutions in Washington.

“Once again the wage number continues to overshadow,” he added, “and with wages rising in lackluster fashion, that has tempered expectations for the Fed to raise rates at a faster pace this year.”

The data also fell short of Wednesday’s ADP report, which showed private-sector employers added 298,000 jobs in February.

Fed fund futures prices showed investors now see a 93 percent chance of an increase in U.S. overnight interest rates this month, according to CME Group’s FedWatch tool. But that number was close to 90 percent before the data was released.

A rate hike this month is a done deal, but “the notion of more than three rate hikes seems a bit premature,” Manimbo said.

The Federal Reserve indicated it planned to raise interest rates three times this year when it increased them in December for the first time in a year.

The euro rose to $1.0646, its highest against the dollar since Feb. 17. That was motivated by reduced expectations for Fed tightening this year and the strong language of European Central Bank President Mario Draghi, who on Wednesday increased the euro zone’s growth and inflation targets for 2018.

The dollar index, which tracks the greenback against six major world currencies, fell to 101.470, its lowest level in nearly a week.

The dollar also fell to its lowest in nearly a week against the Swiss franc, dipping to 1.0083 francs.

The greenback did manage to hang onto its gains against the yen. After touching a seven-week high of 115.50 yen in European trading, the dollar was last up 0.25 percent at 115.19 yen. (Reporting by Dion Rabouin)

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