*Investors await U.S. jobs data and ECB rate decision
*ECB expected to raise rates to 4.25 percent
*Focus on whether ECB will hint at rate rise in August
*Dollar may struggle even if jobs data better than expected
By Masayuki Kitano
TOKYO, July 3 (Reuters) - The dollar hit a two-month low
against the euro on Thursday after a report the previous day
showed U.S. private employers cut the most jobs in nearly six
years and the Dow sank into bear market territory.
Such news reinforced investors' doubts about whether the
Federal Reserve would raise interest rates very soon despite
inflationary pressures from surging oil prices, and dragged the
dollar lower.
The euro, by contrast, was supported by market expectations
for the European Central Bank to raise rates by 25 basis points
to 4.25 percent at a policy meeting later on Thursday and
possibly further beyond that.
"Reasons to sell the dollar are lined up," said a trader for
a Japanese trust bank.
The euro rose as high as $1.5893 on trading platform EBS, the
highest since late April and edging closer to an all-time peak of
$1.6020 that was also hit in April.
It later trimmed its gains to stand at $1.5865 <EUR=>, down
about 0.1 percent from late U.S. trading on Wednesday.
The dollar stood at 106.15 yen <JPY=>, up around 0.3 percent
from late New York.
The Dow Jones industrial average sank into a bear market on
Wednesday, closing more than 20 percent below its October peak,
while the benchmark S&P 500 teetered on the brink of bear market
territory. []
Asian stocks tracked the Dow lower with Tokyo's Nikkei share
average <> falling as much as 1.2 percent at one point
before erasing losses in late afternoon trade.
ADP Employer Services said on Wednesday that U.S. private-
sector employers slashed 79,000 jobs in June, the largest drop
since November 2002, stirring worries that the government's jobs
report on Thursday may also come in weak. []
ECB AND JOBS DATA
According to economists polled by Reuters, the U.S.
government's employment data is likely to show that employers cut
60,000 jobs in June after losing 49,000 the prior month.
[]
The dollar may not gain much lift even if the jobs data comes
in stronger than expected, given renewed worries about U.S.
financial institutions' losses from the credit market turmoil,
market players said.
"Market players probably will not turn optimistic even if the
results this time turn out to be good," said Tomoko Fujii, head
of economics and strategy for Japan at Bank of America, referring
to investors' views on the U.S. economy.
Concerns about the financial sector are likely to weigh on
the dollar ahead of quarterly earnings announcements by major
U.S. banks later in July, said a trader for a Japanese bank.
Some market players said the ECB's rate decision and news
conference by ECB President Jean-Claude Trichet on Thursday may
have more impact on the currency market than the U.S. jobs data.
The euro could make a try for its record peak if Trichet's
remarks are viewed as being hawkish, said Bank of America's
Fujii.
The ECB is widely expected to raise rates on Thursday, and
the focus will be on whether or not Trichet stokes market
expectations for the central bank to raise interest rates again
in August.
"The chances are increasing that the euro could retreat if
the (ECB) statement does not strongly suggest the possibility of
an August rate rise," said Masafumi Yamamoto, head of foreign
exchange strategy for Japan at the Royal Bank of Scotland, in a
research note.
Data this week showed that euro zone inflation jumped to a
record 4.0 percent year-on-year in June, more than double the
ECB's target of just under 2 percent, underscoring market
expectations for the ECB to raise interest rates on Thursday.
