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FOREX-Dollar slumps as prospects of Fed trimming stimulus fades

* Dollar index touches close to 9-mth low, euro/dlr sets

2-yr high

* 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 versus a basket of currencies on Wednesday after U.S.

jobs data prompted investors to all but rule out the chances of

a cut in U.S monetary stimulus before next year.

The greenback also touched a fresh two-year low versus the

euro. This pushed the single currency to a two-year peak against

a trade-weighted basket of currencies and

strategists said if the ascent gathered pace they expected

European policymakers to complain about the euro's strength.

The dollar fell to as low as 79.137 against a basket

of currencies, nearing this year's trough of 78.918 set in early

February. It was last flat at 79.318.

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. Chinese equities fell

1.2 percent.

A delayed batch of 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

partial shutdown of the federal government.

"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. It is going to be

difficult for the Fed to begin tapering before year end now."

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

believe the Federal Reserve will not start cutting its current

$85 billion a month bond buying until March.

The euro was down 0.2 percent at $1.3760. It had

risen to as high as $1.3793 on trading platform EBS, to reach

its highest level since November 2011.


Sim Moh Siong, FX strategist for Bank of Singapore said that

in the near-term, the dollar could see further weakness against

other major currencies such as the euro and sterling and that

the single currency may rise towards levels around $1.39.

"I think there's certainly a high possibility that dollar

weakness might extend a bit further, but I'm not really sure

that it changes the medium-term dollar picture," he said,

pointing to the Fed's Oct. 29-30 policy meeting, which could

provide clarity on whether there has been any substantial change

to Fed policymakers' views on the economy.

The dollar fell 0.8 percent against the yen to 97.33 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 1.0 percent to

133.59 yen, down from Tuesday's four-year high of

135.52 yen.

Strategists said that in an environment where the Fed is

likely to keep its stimulus taps running, high-yielding

currencies, like the Australian dollar, are likely to benefit.

The Aussie had earlier scaled a 4-1/2 month high of

$0.9758 against the U.S. dollar after a forecast-beating

inflation reading reduced the chances of further interest rate

cuts from Australia's central bank.