U.S. Markets closed

FOREX-Dollar hit by bets on longer Fed stimulus

* Dollar index close to 9-month low, euro/dlr sets 2-year


* Euro index at 2-year peak, could bother European


* Weak U.S. jobs data cements view Fed stimulus to stay

By Anooja Debnath

LONDON, Oct 23 (Reuters) - The dollar struggled near a

nine-month low on Wednesday after weak payrolls data prompted

investors to all but rule out a cut in U.S monetary stimulus

before next year.

The dollar fell to as low as 79.137 against its

basket of currencies, nearing this year's trough of 78.918 set

in early February. It was last up 0.1 percent at 79.359.

It touched a two-year low versus the euro, pushing the

single currency to a two-year peak against its trade-weighted

basket. The euro's steep ascent could cause

concerns among European policymakers.

The U.S. currency also extended losses against the yen -

generally used as a safe haven by investors in times of

political and economic uncertainty - as a drop in regional

shares dented sentiment in Asia.

Delayed data on Tuesday showed U.S. employers added far

fewer workers than expected in September, suggesting the economy

may have lost some momentum even before the 16-day government

shutdown in Washington.

"The weaker-than-expected payrolls report certainly supports

investors' expectations that the Fed is likely to delay tapering

quantitative easing into at least the first quarter of next

year," said Lee Hardman, currency economist at BTMU.

"In the very near term the dollar is likely to remain on the

defensive even if the data begins to improve. Now that the

shutdown has ended, it is going to take time to have greater

clarity on the trajectory of the U.S. economy."

A majority of U.S. primary dealers polled by Reuters now

believe the Federal Reserve will not start cutting its $85

billion of monthly bond purchases until March.

Strategists pointed to the Fed's Oct. 29-30 policy meeting,

which could indicate whether there has been any substantial

change to Fed policymakers' views on the economy.

The dollar fell 0.9 percent against the yen to 97.32 yen

, testing its 200-day moving average, now at about 97.27

yen, which was acting as near-term support.

The yen rose broadly, with the euro falling 1.1 percent to

133.78 yen from Tuesday's four-year high of 135.52.


Against the dollar, the euro had risen as high as

$1.3793 on Tuesday, its highest level since November 2011. It

was last down 0.2 percent at $1.3750.

Strategists said if the euro's ascent gathered pace the

European Central Bank could adopt some form of verbal

intervention or other measures to dampen its strength.

"Euro/dollar is trading at new highs for the year and the

question is what will the response be from the ECB?" said Chris

Turner, head of FX strategy at ING in a note to clients.

"Euro zone headline inflation is low, and the ECB could

repeat its February stance that the strong euro increases

downside risks to inflation."

He added that the ECB could hint at the need for more

monetary stimulus via new Long-Term Refinancing Operations

(LTRO) as it acknowledges that a "decline in excess liquidity

could be pushing up money market rates.

"Investors seem happy to play the weak dollar trend against

the euro. $1.3710/30 looks a buy for a multi-day move to