(Recasts, updates prices, adds comment)
* ISM non-manufacturing index above forecast
* ADP report shows unexpected gain in private sector jobs
* Data bolsters expectations Fed won't cut rates this year
By Gertrude Chavez-Dreyfuss
NEW YORK, June 4 (Reuters) - The dollar edged higher
against a basket of major currencies on Wednesday, supported by
U.S. data showing a surprise rise in private sector jobs and an
unexpected expansion in the U.S. services sector.
Wednesday's run of positive economic data has further
bolstered expectations that the Federal Reserve was unlikely to
cut interest rates this year and may even raise them if
inflation pressures continue to rise. That should stem the
erosion of the dollar's appeal to global investors.
"The short-term fundamentals for the U.S. have been
positive and that has modestly supported the dollar," said Joe
Francomano, vice president for foreign exchange at Erste Bank
in New York.
In midday trading, the New York Board of Trade's dollar
index was up 0.1 percent at 73.396 <.DXY>. The euro <EUR=> was
flat to modestly higher against the dollar at $1.5447.
Against the yen <JPY=>, the dollar was down slightly at
104.95 yen. The dollar was flat versus the Swiss franc at
1.0411 francs <CHF=>.
Positive news on the economy has so far offset worries
about persistent troubles in the U.S. financial sector. It did
help that U.S. stocks were higher on the day and U.S.
investment bank Lehman Brothers <LEH.N> posted sharp gains.
Lehman shares had sold off on Tuesday after The Wall Street
Journal reported that the brokerage might seek to raise more
capital, sparking credit concerns.
By Wednesday, Lehman retraced some of its losses partly on
news that Loomis Sayles investment manager Dan Fuss had been
buying Lehman debt over the past several days.
Still, the overall mood in the currency market remains
cautious, analysts said.
"We are still in a panic mode with these financials. We are
still in a credit crunch, but the reason we're not as down as
before is that the Fed is more involved," said Francomano.
Earlier in the session, data from ADP Employer Services
showed that the U.S. economy added 40,000 new jobs in the
private sector last month. Markets were expecting job losses of
30,000. The data provided a boost to the dollar.
"It's such a lottery number, but I think you have to give
it a bit of weighting today because it was a surprise and it
caught the market a bit off guard," said Steven Butler,
director of foreign exchange trading at Scotia Capital in
Toronto.
The ADP report is often closely watched as it precedes the
U.S. government non-farm payrolls data, scheduled for release
on Friday. The jobs report is expected to show continuing
weakness in the job market, with Wall Street economists
expecting job losses of 58,000, according to a Reuters poll.
A slightly faster-than-expected rise in U.S. productivity
for the first quarter and an expansion in the vast services
sector last month as indicated in the Institute for Supply
Management report added to optimism on the dollar.
"Today's non-manufacturing ISM data, coupled with the
manufacturing ISM data released Monday suggests that the U.S.
economy is expanding at a moderate pace and that the country is
not in the middle of, nor imminently headed for, outright
recession," said Dustin Reid, senior currency strategist at ABN
Amro in Chicago.
Following the U.S. data, the interest rate futures markets
have priced in a 96 percent chance the Fed will hold interest
rates at its next monetary policy meeting this month.
(Additional reporting by Steven C. Johnson; Editing by Leslie
Adler)
