By Deborah Levine and William L. Watts, MarketWatch
NEW YORK (MarketWatch) — The dollar erased its losses on Thursday after the Philadelphia Federal Reserve reported that factory activity in the Philadelphia region contracted for the third month in a row, which weighed on the outlook for U.S. growth and undercut earlier stock market gains.
Earlier, the euro weathered a weakly-received Spanish debt auction.
The ICE dollar index DXY +0.06% turned up to 83.037, down from 82.990 late Wednesday in North America.
The euro EURUSD -0.17% turned down to $1.2248, up from $1.2280 Wednesday.
The dollar showed little reaction after an earlier report showed U.S. jobless claims jumped, though analysts attributed it to seasonal adjustments.
Analysts said the data, while weak, doesn’t change the markets conviction that the U.S. Federal Reserve remained primed to increase its bond-purchase programs.
The U.S. unit had lost ground Wednesday as Federal Reserve Chairman Ben Bernanke finished his second day of congressional testimony, reaffirming the central bank’s willingness to ease further, if needed. Read more on Bernanke, dollar.
But the data so far probably won’t prompt a third round of quantitative easing -- a policy that’s widely seen as akin to printing money and weakens a country’s currency.
“For the Federal Reserve, the latest economic reports harden the case for QE3 but once again, the data is still not weak enough to force the Fed’s hand,” said BK Asset Management managing director Kathy Lien.
The S&P 500 Index SPX +0.10% briefly turned negative after the report’s release, then lately recovered to rise less than 0.1%.
As for European news, Spain sold 2.98 billion euros of various non-benchmark bonds, just shy of the top end of its projected range of €2 billion to €3 billion, but at very high yields. Spanish 10-year government bond yields ES:10YR_ESP +0.72% rose in the secondary market.
The euro later recovered, however, after a news report said Spain would be able to tap the European Financial Stability Facility to purchase Spanish government bonds on the primary and secondary market. Read about Spain and the EFSF.
The WSJ dollar index XX:BUXX -0.08% — a new benchmark with a larger currency basket and based on overall foreign-exchange market turnover — was little changed at 72.00 from 72.01. Read more on new WSJ dollar index.
Aussie, sterling approach recent highs
The Japanese yen also moved higher, with the dollar USDJPY -0.28% dropping to ÂĄ78.59 from ÂĄ78.78.
The euro EURJPY -0.45% fell 0.5% to ÂĄ96.25, heading back towards its lowest level since late 2010, which was hit earlier this week.
The British pound GBPUSD +0.33% rose to its highest level in almost a month against the dollar. Sterling bought $1.5705 from $1.5651.
The Australian dollar AUDUSD +0.51% rose to $1.0418 -- near its highest since April and up from $1.0342 Wednesday.
Deborah Levine is a MarketWatch reporter, based in New York.
William L. Watts is MarketWatch's European bureau chief, based in Frankfurt. Michael Kitchen in Los Angeles contirbuted to this report.
