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FOREX-Dollar stumbles to 8-month low as U.S. gov't shutdown lingers

* Dollar index at 8-month lows as euro extends gains

* Dollar weakens after soft service sector data

* Reuters poll has euro, yen and pound weakening

By Julie Haviv

NEW YORK, Oct 3 (Reuters) - The U.S. dollar fell for a fifth straight session against a basket of major currencies on Thursday, hitting an eight-month low on concerns over what impact the U.S. government shutdown will have on the global economy.

If the partial U.S. government closure, the first in 17 years, ends soon, it is expected to have a limited effect on the U.S. economy. However, the longer it drags on, a bigger negative impact on economic activity is expected.

Atlanta Federal Reserve Bank President Dennis Lockhart said a protracted shutdown would result in "some measurable impact" on fourth-quarter U.S. growth, at least.

A pronounced impact on the U.S. economy could delay a tapering of the Federal Reserve's bond-buying program. The Fed's extraordinary program of bond purchases is viewed negatively for the dollar because it is tantamount to printing money, and therefore a delay in tapering would continue to weigh on the dollar.

President Barack Obama met with Republican and Democratic leaders in Congress late on Wednesday to break the budget deadlock. But even with wide swaths of the government idle, there was no breakthrough and each side continues to blame the other for the impasse. Obama's healthcare law is at the center of the dispute.

The dollar index, which tracks the greenback against six currencies, hit a trough of 79.627, its lowest since February. It last traded at 79.758, down 0.2 percent on the day. The euro is the dominant component of the index.

"The euro has become the new safe haven in this environment," said Steven Englander, head of G10 strategy at CitiFX, a division of Citigroup, in New York.

"The situation in Washington has left the dollar vulnerable across the board and its underperformance against other majors like the euro is here to stay for the time being," he said.

The euro rose to an eight-month high against the dollar, supported by the weak U.S. data, apparent lack of concern by the European Central Bank about the currency's recent strength and better-than-expected euro zone data.

The euro last traded 0.3 percent higher at $1.3617, not far from the session's peak of $1.3645, its highest since Feb. 4.

Currencies briefly extended gains versus the dollar on Thursday after a shooting incident outside the U.S. Capital, exacerbating already tense markets given the shutdown.

Along with concerns about the government's closure, the dollar was weighed down by U.S. data showing growth in the services sector cooled last month as the pace of new orders dipped and hiring slowed.

The U.S. government standoff comes a few weeks ahead of the next political battle over the federal government's borrowing limit. Failure to raise the limit could result in a U.S. debt default, damaging not only the U.S. economy by the global economy as well, International Monetary Fund chief Christine Lagarde said.

Friday's scheduled release of September's employment report will not happen because of the shutdown, the U.S. Labor Department said. No alternative date was given.

The dollar, nevertheless, barely reacted to data pointing to a recovering U.S. labor market. The number of Americans filing new claims for jobless benefits edged higher last week but remained at pre-recession levels.

Higher-than-expected retail sales, a recovery in the euro zone services sector and a jump in Italy's services sector all underpinned the single currency.

Political stability on an Italian government victory in a confidence vote on Wednesday also helped.

According to a Reuters October foreign exchange poll, the euro's strength will not last as growth remains weak; the yen will weaken on more monetary stimulus from the Bank of Japan; and with the Bank of England's rate guidance still in doubt, the pound will fall.

The U.S. dollar is favored by IHS, a top forecaster.

More than 100 strategists were surveyed for the poll.

Against the yen, the euro was up 0.2 percent at 132.43 yen, while the dollar was down 0.1 percent at 97.26 yen. Earlier, it hit a five-week low of 96.92 yen, according to Reuters data.