* Dollar falls broadly on disappointing U.S. data
* Jobless claims surge, Q2 U.S. GDP growth below forecast
* Crude oil price drop limits dollar losses
(Recasts, updates prices, adds comments, changes byline)
By Gertrude Chavez-Dreyfuss
NEW YORK, July 31 (Reuters) - The U.S. dollar slipped on
Thursday, as news of a surprise jump in weekly jobless claims
and weaker-than-expected economic growth in the second quarter
dimmed prospects for interest rate increases this year.
The dollar, however, recovered some of its losses as crude
oil prices fell and U.S. data showed manufacturing activity in
the country's Midwest region rose in July.
Oil futures fell more than $2 per barrel to $124.29 on
Thursday, as weak U.S. economic data affirmed worries about
declining fuel demand in the world's top energy user.
"Today's weak numbers are a reminder that things are not
exactly rosy in the U.S. economy," said Nick Bennenbroek, head
of FX strategy at Wells Fargo in New York.
Data earlier showed the number of U.S. workers seeking
jobless benefits rose to 448,000 in the week to July 26, the
highest reading since April 2003. A separate report said the
U.S. economy expanded at a 1.9 percent annual rate in the
second quarter, below market expectations for 2.0 percent
growth. For more, see [].
Bennenbroek acknowledged though that recent economic
indicators from the euro zone and other parts of the world have
been "discouraging," which should limit the dollar's losses in
the near term.
The euro surged to a session high of $1.5700, according to
Reuters data, adding to overnight gains sparked by a jump in
euro zone inflation to a record high in July. It last traded at
$1.5598 <EUR=>, up 0.1 percent on the day.
The dollar slid 0.2 percent against the yen to 107.85 yen
<JPY=> after falling as low as 107.58 yen.
The ICE Futures U.S dollar index slipped 0.1 percent to
73.225 index <.DXY>.
In the wake of Thursday's data, implied prospects for the
Federal Reserve to raise benchmark lending rates by a quarter
of a percentage point at its monetary policy meeting in
September dropped to 16 percent from 40 percent on Wednesday.
Perceived prospects for an October hike fell to 56 percent from
76 percent.
IMPROVING DOLLAR OUTLOOK
The dollar's outlook started to improve earlier in the
month as the credit crunch showed increasing signs of spreading
to the euro zone, Japan, Australia and other major economies.
By contrast, the United States, the first major casualty of
the nearly 12-month old credit crisis, has garnered support
from the decline in oil prices and generally steady run of U.S.
economic data.
"The building blocks for a dollar recovery against Europe
seem to be falling into place," wrote Jim McCormick, head of
global foreign exchange research at Lehman Brothers in London.
"Relative dollar interest rates have been inching up while
relative growth surprises are the most dollar-positive since
the start of the credit crunch. (Also), the surge in M&A
inflows to the U.S. and out of Europe show that long-run
investors see value in U.S. assets," he said.
Investors would further look to Friday's non-farm payrolls
report for clues on prospects for the U.S. economy.
A Reuters poll showed economists are forecasting job losses
of 75,000 in July. A report on Wednesday showing the U.S.
private sector added 9,000 jobs this month has added a modest
dose of optimism for Friday's data, although Thursday's surge
in jobless claims has doused some of the market's upbeat
expectations.
"In general, the declines in employment in the current U.S.
downturn have been milder than in previous declines and we
think this will remain the case," said Brian Dolan, chief
currency strategist at Forex.com in Bedminster, New Jersey.
Dolan believes a negative jobs report could be an
opportunity to buy the dollar. "If the dollar finishes higher
after worse non-farm payrolls data, it will be an even more
significant piece of evidence that the dollar is turning the
corner and other currencies are being shorted."
(Additional reporting by Lucia Mutikani; Editing by Andrea
Ricci)
