Dollar extends gains as investors debate forex data

The dollar rose on Thursday as investors began to react positively to U.S. data, seeing signs of a recovery which would bolster demand for U.S. assets. The dollar was also helped by month-end flows as investors who had been betting against the dollar and dollar-denominated assets were forced to buy to reduce losses.

U.S. weekly jobless claims decreased in the latest period even as continued claims notched a fresh record high, a sign some investors took as stabilization of the labor market. A separate report showed business activity in the U.S. Midwest contracted at a less severe rate than expected in April. "If the U.S. economy starts to show signs of sustained stabilization, the dollar may begin to perform better, though it's probably a bit premature to say this now," said Brian Dolan, chief currency strategist at Forex.com in Bedminster, New Jersey.

The euro was last down 0.2 percent at $1.3235 while the dollar was 0.9 percent higher against the yen at 98.33 yen .

A rise in euro zone unemployment to 8.9 percent in March from an upwardly revised 8.7 percent in February underlined the view that the euro zone economy remains weak. Other data showed that euro zone inflation remained at a record low of 0.6 percent year-on-year in April

Moves in the dollar were also being dictated by month-end fixing related flows tied in part to equity-related adjustments.

"The dollar is up because of overall demand for the greenback," Kathy Lien, director of currency research at GFT Forex in New York. "A lot of month-end dollar negative flows are ending as it is the last day of trading" for the month.

Other data showed the weak U.S. job market continued to pressure incomes and spending in March, government data showed on Thursday. A report from the Commerce Department showed consumer spending fell 0.2 percent in March after a 0.4 percent increase in February, initially reported as a 0.2 percent rise. Spending, which accounts for over two-thirds of U.S. economic activity, had also risen in January.

Personal income slipped 0.3 percent after declining 0.2 percent in February, the Commerce Department said. Personal income has declined in five of the last six months.

Savings increased to an annual rate of $455.3 billion. The savings rate climbed to 4.2 percent in March from 4 percent in February.

Inflation was moderate in March, with the personal consumption expenditures price index, excluding food and energy, up 1.8 percent on a year-over-year basis, the same as in February. [ID:nN30506091]

Moves were also exaggerated by thin market conditions ahead of the May Day holiday tomorrow and the start of the Golden Week Holiday in Japan. (Additional reporting by Steven C. Johnson in New York)