* U.S. unemployment rate steady though employers shed jobs
* Euro set for biggest weekly loss vs dlr in its lifetime
* U.S. House vote on rescue plan awaited
(Recasts, updates prices)
By Nick Olivari
NEW YORK, Oct 3 (Reuters) - The dollar remained on track
for its best weekly gain against a basket of currencies in 16
years on Friday, after a report showed the U.S. unemployment
rate remained steady in September even while employers shed
jobs.
U.S. employers cut payrolls at the steepest rate in 5-1/2
years last month, according to a Labor Department report,
slashing an unexpectedly large 159,000 nonfarm jobs as
employment contracted for a ninth straight month.
But foreign exchange investors focused on the unemployment
rate, which was unchanged from August at 6.1 percent. For
details see [].
The report added to the optimism surrounding the dollar,
which was already on track for its best weekly gain versus the
euro in the single currency's lifetime after the European
Central Bank opened the door to interest rate cuts on
Thursday.
"U.S. non-farm payrolls are slightly worse than expected,
with a net revision to prior months ... along with the
unemployment rate holding steady, which somewhat mitigated the
weakness," said Brian Dolan, chief currency strategist at
Forex.com in Bedminster, New Jersey.
"The market is not showing any sign yet of abandoning the
strong U.S. dollar theme of the week. I remain optimistic that
we will get a TARP passage, ugly as it may be, and the market
will embrace risk as an antidote to fear," he added.
The U.S. House of Representatives was due on Friday to vote
on the $700 billion Troubled Asset Relief Program, known as
TARP, the bank bailout measure passed by the Senate earlier
this week.
In early New York trade, the ICE Futures index <.DXY>,
which gauges its performance against a basket of six major
currencies, was little changed at 80.458 <.DXY>, after earlier
touching a 13-month peak of 80.933.
The dollar index, up 4.069 percent this week, was on track
for its best weekly gain since October 1992 at current prices,
according to Reuters data.
The euro fell 0.1 percent on the day to $1.3807 <EUR=>,
after plumbing a 13-month trough of around $1.3704 on Thursday.
The single currency was on track for its worst weekly
percentage loss since its inception in 1999, with a 4.9 percent
loss in the last five sessions, according to Reuters data.
The dollar rose to a session high against the yen after a
report showed that while the sluggish U.S. service sector
barely grew in September, it was in line with expectations.
[].
Dollar/yen was last up 0.7 percent at 106.06 yen <JPY=>,
just below the session peak of 106.116.
Against the yen, the euro was up 0.7 at 146.42 yen
<EURJPY=>, well above a more than two-year trough of around
144.03 yen <EURJPY=EBS> touched earlier in the session.
BIG WEEK
The dollar has surged this week as the international nature
of the financial market crisis was highlighted by the rescue of
some major European lenders, including the Belgian-Dutch
financial services firm Fortis <FOR.BR><FOR.AS>, this week.
"The U.S. authorities are extremely committed to solving
this crisis. ... Europe would never be able to some up with
such a huge stimulus package as they are talking about in the
U.S., and that puts the euro area at a very high risk," Danske
Bank senior currency strategist John Hydeskov said in London.
The deteriorating financial backdrop prompted the ECB,
which left rates unchanged at 4.25 percent on Thursday, to open
the door for its first rate cut in more than five years, with
President Jean-Claude Trichet saying inflation risks have eased
as financial market turbulence hit the euro zone.
[]
"Trichet opened up for a rate cut, some would say that it's
a bit late, but they (ECB) needed some time to change the mood
of the board," Hydeskov said.
A squeeze in interbank lending, with banks reluctant to
lend to each other given the climate of bank failures, is a
major factor behind the dollar's gains, analysts say.
Against that backdrop, a slew of data this week showing the
U.S. economy has likely fallen into a full-blown recession has
done little to take the wind out of the dollar's rise, even as
the Fed is seen likely to cut rates as well this month.
(Additional reporting by Gertrude Chavez-Dreyfuss in New York
and Veronica Brown in London; Editing by Leslie Adler)
