(Recasts, updates prices)
By Lucia Mutikani
NEW YORK, March 3 (Reuters) - The dollar rebounded from
lifetime lows against the euro and a basket major currencies on
Monday amid relief that U.S. manufacturing activity had not
deteriorated as sharply as expected, encouraging investors to
take profits.
But analysts said it was unlikely that the greenback's
recovery would be sustained, given a raft of economic data this
week that could reinforce fears of a U.S. recession and a
steeper Federal Reserve interest rate cut later this month.
"The dollar is rebounding both against the yen and the euro
as a result of the less disappointing ISM number," said Omer
Esiner, forex analyst at Ruesch International in Washington.
"The number while definitely not anything to write home
about did provide an excuse for traders to book some profits on
the overnight losses on the dollar," he added.
Traders wary of another below expectations economic report
had pushed the euro to a lifetime peak of $1.5275 <EUR=>
according to Reuters data, but quickly started buying back the
dollar when their fears did not materialize.
In midday New York trade, the euro traded flat at $1.5192,
helping to pull back the New York Board of Trade's dollar index
<.DXY> from a historic low of 73.354. The index, which tracks
the dollar's performance against a basket of six currencies,
last traded 0.1 percent higher around 73.721.
The dollar cut losses against the yen to trade around
103.53 yen <JPY=>, down 0.3 percent on the day. Rising risk
aversion following a drop in global stocks had earlier pushed
the dollar to a three-year low of 102.62 yen.
Some traders attributed the dollar's recovery to remarks by
European Central Bank chief Jean-Claude Trichet that Washington
backed a strong dollar. Trichet made the remarks as he entered
a meeting of euro zone finance ministers in Brussels.
DATA TO LIMIT DOLLAR'S RECOVERY
Analysts said the dollar's mild recovery was likely to
prove temporary, with more economic data, particularly
February's nonfarm payrolls report, still to be released this
week.
"The likelihood of more negative data out of the U.S. is
very high this week. That should keep the dollar's upside
limited," Esiner said.
The Institute for Supply Management's index of national
factory activity fell to 48.3 in February from 50.7 in January,
slightly above economists' expectations for a reading of 48.0.
A figure below 50 indicates a contraction.
Analysts said the reading meant that an aggressive interest
rate cut at the March Fed meeting could not be written off.
"It was very much relief that it was not another major
downside surprise, but it shouldn't change the rate outlook
significantly," said Matthew Strauss, senior currency
strategist at RBC Capital Markets in Toronto.
Short-term interest rate futures showed a 76 percent chance
of the Fed lowering its benchmark overnight lending rate by 75
basis points at its March 18 meeting. That would further reduce
the allure of the dollar in favor of higher-yielding currencies
such as the euro or Australian and New Zealand dollars.
The fed funds rate is currently at 3 percent after being
slashed by 2.25 percentage points since mid-September. The euro
zone's refinancing rate is at 4 percent with the European
Central Bank preoccupied with inflation.
The drop in global stocks earlier saw the dollar tumble to
a record trough of 1.0308 Swiss francs <CHF=>, before
rebounding to trade 0.2 percent higher at 1.0431 Swiss francs.
The euro weakened against low-yielding currencies, hitting
two-week lows at 155.95 yen <EURJPY=> and 1-1/2-year troughs at
1.5700 francs <EURCHF=>.
News that Canada's economy grew at a slower-than-expected
pace in the fourth quarter pushed the dollar up 0.2 percent
against the Canadian dollar to C$0.9869 <CAD=>.
