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FOREX-Dollar retreats after weak U.S. manufacturing data

By Gertrude Chavez-Dreyfuss

* Dollar index drops from 2-1/2-year high * U.S. ISM manufacturing index falls in September * U.S. construction spending rises less than expected * Graphic: World FX rates in 2019 http://tmsnrt.rs/2egbfVh (Adds new comments, updates prices) By Gertrude Chavez-Dreyfuss NEW YORK, Oct 1 (Reuters) - The dollar fell from its highest level in more than two years on Tuesday, undermined by data showing weakness in the U.S. manufacturing sector and a lower-than-expected rise in construction spending. Against the yen, the dollar slid from two-week highs, as the weak manufacturing report fueled concerns the United States may be headed for recession. Data showed the U.S. manufacturing sector contracted in September to its weakest level in more than a decade as business conditions worsened amid U.S.-China trade tensions. The Institute for Supply Management (ISM) said its index of national factory activity fell to 47.8, the lowest reading since June 2009. A reading below 50 signals the domestic factory sector is contracting. "Our guess is that this weakness is at least partly due to the all-out strike at GM, which began in mid-September," said Paul Ashworth, chief U.S. economist at Capital Economics in Toronto. The United Auto Workers a few weeks ago launched the first company-wide strike at General Motors Co in 12 years. "Nevertheless, it reinforces our belief that despite the hawkish protestations of some officials in recent days, the Federal Reserve will still cut interest rates by a further 25 basis points at December's FOMC meeting. The dollar's outlook remained solid despite Tuesday's weak data, analysts said. "Even though the Fed is lowering interest rates, the dollar is not exactly losing ground because of the domino effect: everybody is following the Fed in cutting rates," said Juan Perez, senior currency trader at Tempus Inc in Washington. "At the this point, with an economy that's growing at 2% on a quarterly basis while the rest of the world is struggling, the dollar looks like to be the safer asset." Elsewhere, the Australian dollar was the main underperformer in the G10 space on Tuesday after the Reserve Bank of Australia cut interest rates and expressed concern about job growth . With rate cuts in Australia, final PMI readings in Europe at seven-year lows and weak confidence readings in Japan, the dollar scored its biggest quarterly gain in the third quarter since June 2018. On Tuesday, a September survey showed euro zone manufacturing activity had contracted the most in almost seven years. In afternoon trading, the dollar index was down 0.2%99.14, after earlier touching 99.58, its highest level since May 2017. The euro was up 0.3% against the dollar at $1.0933. In Japan, its big manufacturers' business confidence worsened to a six-year low in the July-September quarter, the Bank of Japan's closely-watched Tankan survey showed. The yen initially weakened after the Tankan data, but firmed against the dollar after the weak U.S. manufacturing report. The dollar was last down 0.3% at 107.740 yen. Elsewhere, the Australian dollar fell 0.7% to US$0.6710 after the RBA cut its cash rate to a record low of 0.75%, as expected. ======================================================== Currency bid prices at 3:39PM (1939 GMT) Description RIC Last U.S. Close Pct Change YTD Pct High Bid Low Bid Previous Change Session Euro/Dollar EUR= $1.0936 $1.0898 +0.35% -4.65% +1.0942 +1.0880 Dollar/Yen JPY= 107.7000 108.0600 -0.33% -2.32% +108.4600 +107.6400 Euro/Yen EURJPY= 117.79 117.79 +0.00% -6.68% +118.1600 +117.6800 Dollar/Swiss CHF= 0.9927 0.9978 -0.51% +1.15% +1.0016 +0.9927 Sterling/Dollar GBP= 1.2304 1.2287 +0.14% -3.55% +1.2340 +1.2208 Dollar/Canadian CAD= 1.3216 1.3239 -0.17% -3.09% +1.3290 +1.3209 Australian/Doll AUD= 0.6703 0.6749 -0.68% -4.91% +0.6775 +0.6673 ar Euro/Swiss EURCHF= 1.0859 1.0876 -0.16% -3.51% +1.0920 +1.0858 Euro/Sterling EURGBP= 0.8885 0.8867 +0.20% -1.10% +0.8936 +0.8847 NZ NZD= 0.6243 0.6261 -0.29% -7.06% +0.6272 +0.6204 Dollar/Dollar Dollar/Norway NOK= 9.1278 9.0935 +0.38% +5.66% +9.1476 +9.0913 Euro/Norway EURNOK= 9.9838 9.9127 +0.72% +0.79% +9.9839 +9.9082 Dollar/Sweden SEK= 9.8736 9.8408 +0.69% +10.15% +9.9303 +9.8405 Euro/Sweden EURSEK= 10.7997 10.7261 +0.69% +5.22% +10.8110 +10.7209 (Reporting by Gertrude Chavez-Dreyfuss in New York; Editing by Larry King, Matthew Lewis and Tom Brown)