* Sterling tumbles as BoE expands asset buying program
* ECB keeps rates at 1 pct, sees gradual recovery in '10
* Fewer U.S. weekly jobless claims than expected
* Risk-taking fades as markets await nonfarm payrolls (Recasts; updates prices, adds comment, changes byline)
By Steven C. Johnson
NEW YORK, Aug 6 (Reuters) - Sterling plunged on Thursday after Britain's central bank said it would pump more money into a still fragile banking system, while the dollar gained on the euro ahead of a much anticipated U.S. employment report.
The Bank of England did not change interest rates but surprised markets by raising the size of a bond purchasing program designed to boost lending and support the economy.
That knocked sterling off a 10-month peak above $1.70, pushing it down more than 1 percent against the dollar. It also lost ground to the euro after the European Central Bank left interest rates at 1 percent and predicted a recovery in 2010.
Analysts said the BoE's move suggested the U.K. economy is still struggling and injected caution into a market eager to buy higher-risk currencies and assets.
"The BoE move was a surprise and is a double-edged sword. It's reassuring that they are prepared to do what's needed but also hints that the global recovery may not be as aggressive as markets had thought," said Mike Moran, senior FX strategist at Standard Chartered in New York.
Thursday's bout of risk aversion hit Wall Street stocks [.N], and lifted the U.S. dollar off multimonth lows against the euro and other currencies as investors sought a safe haven.
Investors also hedged positions ahead of Friday's nonfarm payrolls data, which are expected to show the pace of U.S. job losses slowed in July [ID:nN05247775].
The euro fell 0.5 percent to $1.4338 EUR=, retreating from a nine-month high of $1.4446 earlier this week. The dollar rose 0.7 percent to 95.55 yen JPY=, while sterling fell 1.3 percent to $1.6758 GBP=. The euro also rose 0.6 percent against sterling to 85.52 pence EURGBP=.
Standard Chartered's Moran said markets were ripe for a pullback as equities, commodities and several foreign currencies have pushed into overbought territory in recent sessions.
To reignite the rally, markets will want to see that the U.S. labor market is following the manufacturing and housing sectors, which have both flashed some encouraging signals that the worst of the recession may be over, he said.
Economists polled by Reuters expect data to show employers cut 320,000 jobs in July, down from the loss of 467,000 jobs the prior month.
"There's a lot of hesitation ahead of the big nonfarm payrolls number tomorrow," said Samarjit Shankar, a director of global FX strategy at Bank of New York-Mellon in Boston.
Data on Thursday showing the number of Americans filing for first-time jobless benefits fell in the week to Aug. 1 whetted appetites for more good news on the job front.
But there's still reason to be cautious, meaning that currency investors may want to be wary of prematurely extending bets against the dollar, analysts said.
"The harsh reality is that companies are not going to start hiring anytime soon. Consumers won't be able to bring this country out of recession via spending," said Jessica Hoversen, fixed-income and currency analyst at MF Global in Chicago. "And in Europe, some of its largest economies are still very fragile." (Additional reporting by Vivianne Rodrigues; Editing by Jeffrey Benkoe)
FOREX-Dollar edges up but hovers near 2009 low vs euro
* US dollar near 2009 low vs euro after better housing data
* Softer world stocks, oil encourage some profit-taking
* Caution ahead of ECB, BoE decisions, US jobs data
* Aussie edges lower from 10-month highs after RBA (Updates prices, adds comment, Canadian dollar move)
By Steven C. Johnson
NEW YORK, Aug 4 (Reuters) - The U.S. dollar gained modestly on Tuesday, but traded near its 2009 low against the euro as a surprisingly strong U.S. housing report boosted hopes that the worst of the recession was over.
Upbeat U.S. and China manufacturing data had pushed the dollar down sharply on Monday, giving investors confidence to buy foreign currencies and riskier assets such as stocks.
But profit-taking in world stock markets on Tuesday helped the dollar rebound, though a 3.6 percent rise in pending U.S. home sales kept it on the defensive.
"We're taking a breather today but the market is still tilted toward higher risk appetite," said Matthew Strauss, senior currency strategist at RBC Capital Markets in Toronto.
The euro was down 0.2 percent at $1.4393 EUR= after trading as low as $1.4368. It hit a nine-month high of $1.4445 on Monday, according to Reuters data.
The dollar slipped 0.1 percent to 95.23 yen JPY= while sterling hit an eight-month high of $1.7004 GBP= before easing back to $1.6928, down about 0.1 percent.
The Australian dollar hit $0.8470 AUD=, its highest level against the U.S. dollar since last September, after the central bank kept interest rates steady, but dropped its easing bias, boosting expectations of a rate hike this year. It was last up 0.1 percent at $0.8432.
The greenback rebounded from a 10-month low against the Canadian dollar to trade up 0.8 percent at C$1.0740.
The move accelerated after Canada's finance minister said the Canadian currency was too strong against its U.S. counterpart and added that "there are some steps that could be taken to dampen that.
Jay Meisler, principal at Global-View.com, an online forum for investors and traders, said such verbal intervention is "a wild card" traders have to watch, adding that European Central Bank officials may also face questions about euro strength when a monthly policy meeting ends on Thursday.
The Swiss National Bank has gone a step further and bought euros and dollars in the currency market to limit Swiss franc appreciation.
DOLLAR STILL FRAGILE
But analysts said investors remained bearish on the U.S. dollar and hopeful that better-than-expected second-quarter corporate results and improvement in global manufacturing activity mean the worst of the recession is over.
That has dried up demand for the dollar as a safe haven and on Monday pushed the U.S. benchmark S&P 500 index .SPX above the 1,000-point mark for the first time in nine months. European shares also hit a nine-month peak.
"Good news for the U.S. economy is bad news for the U.S. dollar," said Andrew Wilkinson, senior market analyst at Interactive Brokers in Greenwich, Connecticut.
For now, a forthcoming U.S. employment report and policy decisions from the ECB and Bank of England have tempered some of the animal spirits.
U.S. jobs data is due on Friday, and the median estimate of economists polled by Reuters is a 320,000 job loss in July, following June's tally of 467,000 job cuts.
"Dollar sentiment, and the dollar itself, remain fragile," said Nick Bennenbroek, head of currency strategy, at Wells Fargo Bank in New York. "U.S. employment figures likely hold the key to this week's greenback performance."
* Softer world stocks, oil encourage some profit-taking
* Caution ahead of ECB, BoE decisions, US jobs data
* Aussie edges lower from 10-month highs after RBA (Updates prices, adds comment, Canadian dollar move)
By Steven C. Johnson
NEW YORK, Aug 4 (Reuters) - The U.S. dollar gained modestly on Tuesday, but traded near its 2009 low against the euro as a surprisingly strong U.S. housing report boosted hopes that the worst of the recession was over.
Upbeat U.S. and China manufacturing data had pushed the dollar down sharply on Monday, giving investors confidence to buy foreign currencies and riskier assets such as stocks.
But profit-taking in world stock markets on Tuesday helped the dollar rebound, though a 3.6 percent rise in pending U.S. home sales kept it on the defensive.
"We're taking a breather today but the market is still tilted toward higher risk appetite," said Matthew Strauss, senior currency strategist at RBC Capital Markets in Toronto.
The euro was down 0.2 percent at $1.4393 EUR= after trading as low as $1.4368. It hit a nine-month high of $1.4445 on Monday, according to Reuters data.
The dollar slipped 0.1 percent to 95.23 yen JPY= while sterling hit an eight-month high of $1.7004 GBP= before easing back to $1.6928, down about 0.1 percent.
The Australian dollar hit $0.8470 AUD=, its highest level against the U.S. dollar since last September, after the central bank kept interest rates steady, but dropped its easing bias, boosting expectations of a rate hike this year. It was last up 0.1 percent at $0.8432.
The greenback rebounded from a 10-month low against the Canadian dollar to trade up 0.8 percent at C$1.0740.
The move accelerated after Canada's finance minister said the Canadian currency was too strong against its U.S. counterpart and added that "there are some steps that could be taken to dampen that.
Jay Meisler, principal at Global-View.com, an online forum for investors and traders, said such verbal intervention is "a wild card" traders have to watch, adding that European Central Bank officials may also face questions about euro strength when a monthly policy meeting ends on Thursday.
The Swiss National Bank has gone a step further and bought euros and dollars in the currency market to limit Swiss franc appreciation.
DOLLAR STILL FRAGILE
But analysts said investors remained bearish on the U.S. dollar and hopeful that better-than-expected second-quarter corporate results and improvement in global manufacturing activity mean the worst of the recession is over.
That has dried up demand for the dollar as a safe haven and on Monday pushed the U.S. benchmark S&P 500 index .SPX above the 1,000-point mark for the first time in nine months. European shares also hit a nine-month peak.
"Good news for the U.S. economy is bad news for the U.S. dollar," said Andrew Wilkinson, senior market analyst at Interactive Brokers in Greenwich, Connecticut.
For now, a forthcoming U.S. employment report and policy decisions from the ECB and Bank of England have tempered some of the animal spirits.
U.S. jobs data is due on Friday, and the median estimate of economists polled by Reuters is a 320,000 job loss in July, following June's tally of 467,000 job cuts.
"Dollar sentiment, and the dollar itself, remain fragile," said Nick Bennenbroek, head of currency strategy, at Wells Fargo Bank in New York. "U.S. employment figures likely hold the key to this week's greenback performance."
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