FOREX-Euro stays near 2-year peak versus weak dollar

Reuters

* Euro stays near 2-year high versus weak dollar

* Pares gains after below-forecast euro zone PMI data

* But outlook still bright due to bearish dollar sentiment

* Dollar weak on expected Fed taper delay, lower US yields

By Jessica Mortimer

LONDON, Oct 24 (Reuters) - The euro rose on Thursday,trading near a two-year high against a weaker dollar as concernsabout the outlook for the U.S. economy and monetary policyoutweighed weaker euro zone data.

The dollar remained under pressure due to lower U.S. bondyields and expectations that the U.S. Federal Reserve willmaintain its stimulus programme into next year.

The euro was up 0.2 percent at $1.3802, havingearlier hit $1.3824, its strongest since November 2011.

It came off its highs after purchasing managers' surveys forthe euro zone showed the pace of growth in business activityeased unexpectedly this month, suggesting the region's recoverymay be less solid than previously thought.

Analysts and traders said the euro may struggle to make asustained break above $1.38. However, it could get a boost ifU.S. weekly jobless claims numbers at 1230 GMT are on the lowside, following below-forecast non-farm payrolls on Tuesday.

"I think the euro has legs and strength and will tradethrough $1.40 up to $1.4250," said Neil Jones, head of hedgefund FX sales at Mizuho. He expected a gradual climb to $1.40roughly over the next six weeks.

He said this was partly a "bearish dollar trade", based onexpectations the Fed would not scale back its bond buyingprogramme until at least March. He saw the euro as the mainbeneficiary from investors seeking alternatives to the dollar.

"The positive sentiment towards the euro is there and forthat reason the market is tending to ignore poor euro zone dataand trade on good data."

Jane Foley senior currency strategist at Rabobank, however,said Thursday's peak of $1.3824 could act as stiff chartresistance for the euro for now.

"The disappointing tone of the euro zone data will suggestthat the euro is looking toppy up here, and this should keepeuro/dollar in check," said Jane Foley senior currencystrategist at Rabobank.

The dollar fell broadly, hitting a near nine-month lowagainst a basket of currencies of 79.081. It was last down 0.1percent on the day at 79.168.

Weak U.S. jobs data on Tuesday suggested the U.S. recoverywas not yet on a firm footing, while a drop in the 10-year U.S.Treasury yield on Wednesday to a three-month lowfurther dented the dollar's appeal.

The dollar dipped 0.1 percent against the yen to 97.30 yen but held above Wednesday's two-week low of 97.15 yen.

The Australian dollar was down 0.1 percent at$0.9614, paring gains after an earlier boost from data showingChinese manufacturing activity hit a seven-month high inOctober.

Analysts said concerns remained about rising money marketrates in China, which may weigh on the Australian currency.China's benchmark seven-day repo rate rose nearly a fullpercentage point on Thursday after China's central bank let cashflow out of the money market for a second week.

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