(Recasts; updates prices, changes byline)
By Lucia Mutikani
NEW YORK, May 2 (Reuters) - The dollar scaled two-month
highs against the yen and a basket of currencies on Friday
after an unexpectedly small drop in U.S. nonfarm payrolls left
investors hoping any U.S. recession would prove a shallow one.
News that the struggling economy shed only 20,000 jobs in
April also supported views that the Federal Reserve would
refrain from cutting interest rates again, provided economic
data and financial markets did not deteriorate further.
Fed rate cuts totaling 3.25 percentage points since
mid-September have eroded the allure of dollar-denominated
assets to investors seeking higher returns, undermining the
greenback against the high-yielding euro and Austrlian and New
Zealand dollars.
"All the numbers during the last few weeks suggest that the
economic situation in the U.S. is not worsening or getting
better," said Paresh Upadhyaya, portfolio manager at Putnam
Investments in Boston. "All signs point to a shallow recession,
but we could see a prolonged period of weakness once the U.S.
emerges from the recession."
The dollar surged to a two-month peak of 105.69 yen <JPY=>,
and has gained nearly 1 percent against the Japanese currency
on the week. It was last up 0.9 percent at 105.40.
The New York Board of Trade's dollar index, which charts
the dollar's performance against a basket of six currencies,
climbed to two-month peaks at 73.698 <.DXY>. It was last around
73.534, on track for it's third straight weekly gain.
Labor Department data showed U.S. employers cut 20,000 jobs
in April, marking the fourth straight month of contraction inemployment. Economists polled by Rueters had been looking for
payrolls to decline by 80,000 after an upwardly revised loss of
81,000 jobs in March.
The unemployment rate also eased to 5.0 percent from 5.1
percent in March. For details, see []
FED PAUSE NOW MORE LIKELY
With economic data continuing to beat market expectations,
analysts said it was becoming more likely that the Fed would
keep its key overnight lending rate at 2 percent for a while.
This would support the dollar against the euro, especially
as perceptions rise that the European Central Bank will be
forced to ease monetary policy at some point this year amid
increasing signs of slower growth in the euro zone.
"As long as interest rate differentials continue to move
sideways, to even move to the benefit of the dollar, that could
help support the dollar," said Upadhyaya.
"The downside to the dollar is limited because of the
direction of interest rates and some signs of robust foreign
direct investment and a pickup in equity flows."
The euro <EUR=> fell to $1.5362, the lowest level since
March 24, according to Thomson Reuters data. It traded back up
at $1.5425 at midday, down 0.3 percent on the day.
For the week, the euro has lost 1.3 percent against the
dollar, declining for a second straight week. But the
enthusiasm for the dollar is not shared by all, with some
traders dismissing the move as a temporary correction.
"This is profit-taking. Others might be thinking that the
dollar has reached a bottom and it might be time to start
buying it. They could be right in the near term," said Firas
Askari, head currency trader at BMO Capital markets, Toronto.
"Over the long term, the U.S. economy is not going to
rebound for quite some time."
The dollar rose to a nine-week high against the Swiss franc
to 1.0606 <CHF=>, before edging back down to 1.0563 francs. It
was on track for its largest weekly gain since December.
The dollar was also mildly supported by an unexpected rise
in U.S. factory orders for March and news about the injection
of additional liquidity by major central banks to stabilize
credit markets.
The Fed said it would step up the amounts offered in some
cash auctions to financial institutions, while the European
Central Bank and Swiss National Bank will boost their auctions
of dollar funds by European banks. []
(Additional reporting by Gertrude Chavez-Dreyfuss; Editing by
Jonathan Oatis)
