Dollar limps up from lows before U.S. jobs report

TOKYO, Sept 2 (Reuters) - The dollar edged up on Friday after hitting a three-month low against the euro a day earlier on yet more weak U.S. economic data that fanned speculation the Federal Reserve could soon halt its series of interest rate increases.

This week's U.S. data has all come in worse than expected, compounding investor jitters about the economy's outlook from record oil prices and the severe destruction caused by Hurricane Katrina.

The Institute for Supply Management's (ISM) index of national manufacturing activity fell more sharply than expected to 53.6 in August from 56.6, data showed on Thursday, a day after news of the first contraction in Midwest business activity in more than two years.

Traders are now eyeing the U.S. payrolls report for August at 1230 GMT for more signs of weakness. Economists' consensus forecast is for employers to add 190,000 jobs after hiring 207,000 in July.

"The dollar's outlook doesn't look very good," said a trader at a Japanese bank. "The impact of Hurricane Katrina also seems bigger than previously thought."

By 0120 GMT, the euro had eased a tad to $1.2490 from around $1.2500 in late Thursday New York trade. The single currency climbed as high as $1.2525 on Thursday and is up about 3 percent from lows near $1.2170 on Tuesday.

The dollar kept most of its losses against the Swiss franc at 1.2350 francs, also near a three-month low. The Swiss franc has strengthened on investor risk aversion as oil prices have surged and cast doubts on the global growth outlook.

Against the yen, the dollar drifted up to around 109.90 yen from a low of 109.60 yen on Thursday. Traders said dollar buying by Japanese importers provided some support.

News that Fed Chairman Alan Greenspan had lunch with President George W. Bush on Thursday helped stir expectations that the Fed could stand pat at its Sept. 20 policy meeting to assess the economic fallout from Katrina.

The Fed's repeated rate rises over the past year powered the dollar higher during the first half of the year.

But after peaking in early July, the dollar has retreated on mounting worries about the threat to U.S. growth from soaring energy prices and chances of an end to the country's housing boom.

Oil prices stood at $69.30 on Friday, not far from an all-time high of $70.85 hit on Tuesday in the wake of Katrina's devastation to important U.S. oil and gasoline operations in the Gulf of Mexico.

The fed funds rate stands at 3.5 percent, and most analysts had expected it to rise to 4 percent or 4.25 percent by the year-end. But that was before the run of poor data and Katrina's impact.

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source: reuters

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