(Updates prices, adds byline, quote)
By Gertrude Chavez-Dreyfuss
NEW YORK, Jan 30 (Reuters) - The dollar fell to fresh
two-week lows against a basket of major currencies on
Wednesday, pressured by data showing the U.S. economy last year
grew at its slowest pace in five years.
The report seemed to affirm expectations that the Federal
Reserve will slash benchmark short-term interest rates by a
hefty half-percentage point later on Wednesday, although some
analysts suggested that it may not be as clear-cut as what
markets initially thought.
Strong data on private sector jobs, a low level of jobless
claims, and robust durable goods orders seemed to indicate that
the U.S. economic outlook was not all that gloomy.
"We had the GDP report earlier, which hurt the dollar, but
investors are adjusting their positions ahead of the Fed
decision," said Adam Fazio, senior currency strategist at CIBC
World Markets in New York.
"I'm reading stuff saying it's not all that bad, especially
with the good durables number and the ADP report. I think it
would be a toss-up between 50 and 25 basis points than what
most people would assume," he added.
The dollar index fell to 75.342 <.DXY>, its lowest since
Jan. 15 after the GDP data, but traded back up to 75.521,
slightly down on the day.
Data on Wednesday showed that gross domestic product, a
gauge of total U.S. goods and services output, edged up at a
weaker-than-expected 0.6 percent annual rate in the fourth
quarter and for the full year advanced only 2.2 percent. That
was the slowest annual growth since 1.6 percent in 2002. For
more see [].
The euro edged up to $1.4787 <EUR=>, but was off its two
week-highs at $1.4818, according to Reuters data.
The dollar rose 0.2 percent against the yen to 107.36
<JPY=>, partly helped by news that worsening economic
conditions in Japan could warrant a rate cut by the Bank of
Japan.
Takatoshi Ito, a professor of economics at the University
of Tokyo who some say could be the next governor of the central
bank, said Japan's economy may be in a downturn in its economic
cycle. See story [].
The news undermined the yen, which had earlier gotten bids
after Swiss bank UBS unveiled $4 billion in new write-downs.
That had earlier dampened risk appetite and encouraged pulling
investment out of equities and into traditionally safer assets
such as government bonds and funding currencies like the yen.
The dollar slipped 0.2 percent against the Swiss franc at
1.0917 francs <CHF=>, and fell 0.2 percent versus the Canadian
dollar to C$0.9960 <CAD=>.
Analysts say the unravelling of the U.S. housing market and
the subsequent malaise spreading throughout global financial
markets have tilted the U.S. economy toward recession, which
has prompted aggressive Fed action.
Later on Wednesday, investors will be scrutinizing the
statement accompanying the Fed's policy decision for clues
about the extent of this year's monetary easing.
"The Fed has been savaged over the past week after policy
makers appeared to bow to the equity market, with last
Tuesday's move looking particularly clumsy following the
Societe Generale revelation," said Stephen Malyon, currency
strategist at Scotia Capital.
"With gold prices soaring and TIPS break-even rates jumping
higher, a modest move might help restore some of the Fed's
inflation-fighting credibility, or so the theory goes," he
added.
(Editing by Chizu Nomiyama)
