(Recasts, updates prices, changes byline)
By Lucia Mutikani
NEW YORK, Feb 22 (Reuters) - The dollar fell broadly on
Friday, hitting a three-week low against the euro, amid
mounting fears of a U.S. recession and more credit-related
losses.
But a CNBC television report that a bailout for bond
insurer Ambac Financial Group <ABK.N> was imminent saw U.S.
stocks stage a late rally, helping the greenback fight back
from earlier troughs against the yen.
"The dominant theme on the FX market today was broad dollar
weakness, that's what we are seeing," said Matthew Strauss,
senior currency strategist at RBC Capital Markets in Toronto.
The dollar came under pressure as Thursday's contraction in
the Philadelphia Federal Reserve Bank's Mid-Atlantic business
activity index stoked recession fears, in contrast to the euro
zone's surprising growth in the service sector reported on
Friday.
In late New York trade, the euro was up 0.2 percent at
$1.4835<EUR=>, after racing to a three-week peak of $1.4861 on
the back of the better-than-expected euro zone services sector
data.
The euro zone services PMI index rose to 52.3 in February
from 50.6 the previous month, a survey showed on Friday. The
data dampened expectations of near-term rate cuts from the
European Central Bank.
The dollar last traded down 0.1 percent at 107.18 yen
<JPY=>, after sliding to a session low 106.74 yen. Against the
Swiss franc, it dropped 0.4 percent 1.0848 <CHF=>.
A late rally on the U.S. stock market caused the euro to
erase earlier losses versus the yen. It last traded flat at
158.49 yen <EURJPY=> after touching an intraday low of 158.16
yen.
Analysts reckoned the dollar would remain vulnerable next
week, with key housing and confidence reports due for release.
They said the data would most likely confirm that the
world's largest economy was sharply slowing down and back
expectations of another 50 basis points reduction in the fed
funds rate target next month.
"We may see weak U.S. data weighing on the U.S. dollar more
than previously because we are getting closer to the Fed
meeting and fresh from the Fed's (revised growth) projections,"
said Ashraf Laidi, chief FX strategist at CMC Markets in New
York. "We are looking for further gains in the euro and we
could see 1.49."
In contrast, rate futures markets are fully pricing in a
half percentage point cut at the Federal Reserve's next meeting
in March to 2.50 percent and factor in a small chance of a
bigger 75 basis points reduction.
That would add to an unusually aggressive 125 basis points
of cuts in January, as the Fed tries to stave off a U.S.
recession.
The Canadian dollar, meanwhile, weakened after a domestic
retail sales report missed expectations and supported the case
for more rate cuts from the Bank of Canada. In late trade, the
U.S. dollar was up 0.1 percent against at C$1.0121 <CAD=>.
(Additional reporting by Gertrude Chavez-Dreyfuss; editing by
Leslie Adler)
