Sweden's krona in focus on lackluster outlook for euro zone By Deborah Levine and William L. Watts, MarketWatch NEW YORK (MarketWatch) -- The dollar extended losses against the euro and Japan's yen on Thursday after data showed U.S. jobless claims rose, pending home sales plunged and manufacturing activity slowed, all signaling weakness in the country's economic outlook. The European single currency gained ground earlier after Spain managed to sell out 3.5 billion euros ($4.3 billion) of five-year bonds. The dollar index (DXY 84.84, -1.18, -1.37%) , a measure of the greenback against a trade-weighted basket of six major currencies, fell to 84.929 from 86.012 late Wednesday. The euro (CUR_EURUSD 1.2453, +0.0218, +1.7821%) rallied to $1.2433, up from $1.2247 in North American trading late Wednesday. It hasn't topped $1.24 intraday since June 21. The dollar extended losses after a slew of weak U.S. economic data. The Labor Department said initial claims for jobless benefits rose 13,000 to 472,000 last week, confounding economists' expectation that applications would tick lower from the previous week. Read about U.S. jobless claims. Later, the Institute for Supply Management's manufacturing index fell to 56.2 in June from 59.7 in May, more than many analysts anticipated. A separate report showed pending home sales fell 30% in May. "The problem in the current recovery is that it has largely been concentrated in the manufacturing sector and if growth in the sector slows, and it is, then there is no sector ready to take the growth baton," said Dan Greenhaus, chief economic strategist at Miller Tabak. Spain's successful bond auction came a day after Moody's Investors Service placed the nation's Triple-A sovereign credit rating under review for possible downgrade. The Spanish auction saw the government sell the maximum amount on offer. Bids received exceeded supply 1.7 times, a ratio down from 2.35 times in a May 6 bond auction. The average yield rose to 3.657%, up from 3.532% at the May auction. Read about the auction results. "Although Spain had to pay up a higher rate than the previous auction the fact that it was able to place all of its allotment of €3.5 billion was viewed with relief by the market," said Boris Schlossberg, director of currency research at GFT. That "spurred a sharp short-covering rally in the currency market that took the pair through the $1.2300 handle." The single currency temporarily edged back below the $1.23 level after the European Central Bank said it allotted €111.2 billion ($135.9 billion) in six-day loans at the benchmark rate of 1%. The operation came on the same day that banks must repay €442 billion in one-year loans. "It seems that appetite for government debt remains alive and that fears for euro-zone sovereign risk maybe slimming at the margin," said Andrew Wilkinson, senior market analyst at Interactive Brokers. Analysts said strong participation in the short-term tender muted support for the euro somewhat, although overall demand for loans in the six-day operation and in Wednesday's three-month tender came in below expectations. Still, concerns remain about funding pressures for European banks. Riksbank rates Meanwhile, traders focused on the Swedish krona in light of the decision Thursday by Sweden's central bank to hike its key lending rate to 0.5%, up from 0.25% previously. The euro sold for 9.6247 krone, a gain of 1%. The Riksbank also offered a gloomy assessment of Swedish economic prospects. While the Scandinavian nation's economy is developing "strongly," the Riksbank said it won't be hiking rates as "rapidly as we previously assumed" due to expectations that the 16-nation euro zone -- Sweden's main trading partner -- will take a hit as a result of budgetary belt-tightening. Read about the Riksbank. British pound, Japanese yen Turning higher in recent trading, the British pound (CUR_GBPUSD 1.5120, +0.0176, +1.1777%) rose about 1% to $1.5110 after having been slightly lower. Sterling changed hands at $1.4961 on Wednesday. A purchasing managers index for Britain's manufacturing sector showed activity continued to grow at a fast pace in June, although it slowed from the 15-year peak seen in May. Read about the PMI data. The dollar also dropped 1.3% against the yen (CUR_USDYEN 87.1300, -1.2300, -1.3920%) , reaching a two-month low as it fell to ¥87.26 from ¥88.48 on Wednesday. The yen benefited from a stronger-than-expected headline figure in the Bank of Japan's quarterly tankan survey of business sentiment. See more on tankan. But sentiment in stock markets across Asia got undercut by disappointing Chinese manufacturing data, which indicated a slowdown in growth for the regional powerhouse. Broad-based selling in stocks sent risk-averse investors scurrying into the lower-yielding yen. Read about China PMI data.

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