FOREX-Dollar falls as sentiment weakens ahead of US data

Reuters

(New throughout, updates prices and market activity)

* U.S. nonfarm payrolls Thursday key to dollar outlook

* ECB policy meetings also in focus this week

By Gertrude Chavez-Dreyfuss

NEW YORK, June 30 (Reuters) - The dollar slid on Monday to an eight-week low against a basket of currencies, as investors grew cautious ahead of a slew of U.S. economic data this week following dismal growth figures last Wednesday.

The greenback dropped to a six-week trough versus the yen, with market participants caught long dollars last week ahead of the weak U.S. gross domestic product data. The dollar fell below its 200-day moving average against the yen for a second straight session, highlighting weakened sentiment on the U.S. currency.

"People are more nervous about the data this week so the dollar is on the defensive," said Vassili Serebriakov, currency strategist at BNP Paribas in New York.

Last week's limp U.S. data gave investors little reason to expect higher U.S. interest rates any time soon.

In contrast, the euro rose to a six-week high against the dollar, reacting little to Monday's headline euro zone inflation number of 0.5 percent, with the core rate at 0.8 percent. The inflation report reinforced the need for the European Central Bank to run very loose monetary policy but was short of a reading that would demand more action from a monthly meeting on Thursday.

Camilla Sutton, chief currency strategist at ScotiaBank in Toronto, said the euro zone inflation number suggested "there are signs ... of some stabilization in disinflationary pressures and rising oil prices should keep upward pressure building."

In late trading, the dollar index was last at 79.786, down 0.3 percent. It hit an eight-week low earlier at 79.759, ending the second quarter down 0.4 percent.

The dollar also fell to a six-week low versus the yen of 101.21 yen, and was last at 101.31, down 0.1 percent.

The euro, meanwhile, rose to a six-week peak of $1.3697 and last changed hands at $1.3691, up 0.3 percent.

Europe's shared currency has been creeping higher since mid-June, retaking some of the ground lost after the bank took steps to pump yet more money into the economy a month ago.

All of the broader market and economic trends that have supported the euro zone common currency this year remain intact but many analysts are again pointing towards growing momentum in the U.S. economy which should eventually support the dollar.

This week, all eyes are on U.S. nonfarm payrolls figures, due a day earlier than usual, on Thursday, and which are expected to show creation of 210,000 jobs in the past month.

"If we get a strong print, it will be the fifth time in a row that we have been over 200K," said Peter Kinsella, a strategist with Germany's Commerzbank in London.

"It should only be a matter of time before the dollar finally begins to gain some traction." (Editing by David Gregorio)

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