NEW YORK (MarketWatch) -- The dollar extended gains against the euro and other major currencies Wednesday after new data gave a mixed outlook for the services and manufacturing sectors of the U.S. economy.
Halting its slide in recent days, the greenback had earlier advanced after a news report signaled major Asian central banks are prepared to keep buying U.S. Treasurys.
The dollar index , which measures the performance of the greenback against a basket of currencies, rose to 79.063 from 78.477 in North American trading Tuesday afternoon.
The dollar held up after the ADP employment index indicated the U.S. private sector eliminated 532,000 net jobs in May, after a 545,000 drop in April. See more on the ADP report.
It added to gains after the Institute for Supply Management said business worsened in May in the nonmanufacturing sectors of the U.S. economy for the eighth consecutive month.
The ISM services index rose to 44% from 43.7% in April. Economists were expecting an increase to 46%. Readings under 50% indicate that most firms say business conditions worsened in May compared with April.
Meanwhile, the Commerce Department said orders for U.S.-made factory goods rose 0.7% in April, reported Wednesday, less than economists surveyed by MarketWatch predicted.
Also on the radar, Federal Reserve Chairman Ben Bernanke told the House Budget Committee that the pace of the economy downturn is slowing and he still expects a gradual recovery this year. See more on Bernanke.
"The market will be looking for an update on his 'green shoots,' any commentary on plans the Fed might have to combat rising borrowing costs, and his thoughts on rising energy prices and core inflation in April," T.J. Marta, chief strategists at Marta on the Markets, wrote in a morning note.
Currency markets have tended to closely track equity markets lately, as falling stocks indicate investor aversion to risk and greater demand for the dollar. Rising stocks are taken as a sign of increasing comfort with risk and less need for the safe haven of the U.S. currency.
The Standard & Poor's 500 index recently traded down 1.6%.
Central banks still want dollars
Earlier, the dollar got a boost after a Reuters report said central banks still sought the safety of dollar investments. Citing unnamed sources, the report said central banks in China, Japan, India and South Korea would likely shrug off portfolio losses stemming from any potential cut in the U.S. sovereign credit rating, opting to continue buying dollars because there are no alternatives in terms of the liquidity afforded by the currency.
"The markets are also being calmed after officials from China to Japan, India, Russia and South Korea announced that the U.S. dollar remains the world's main reserve currency," strategists at Brown Brothers Harriman said.
The euro slipped to $1.4190, down from $1.4323 on Tuesday, as currency traders shrugged off fresh economic data for the 16-nation euro zone.
The Markit composite purchasing managers index rose to better-than-expected May reading of 44, an eight-month high.
Separately, euro-zone producer prices registered a bigger-than-foreseen monthly drop in April, statistics agency Eurostat reported. The agency also reported a 2.5% quarterly contraction in first-quarter euro-zone gross domestic product, unchanged from a preliminary estimate released last month.
Sterling in spotlight
Also Wednesday, the British pound jumped to a fresh seven-month high against the dollar in early action only to retreat after the CIPS/Markit purchasing managers index for May showed the country's services sector expanded for the first time in 13 months. See full story.
Traders felt the rise had already been largely factored into sterling in light of the currency's recent rally, Maher said. Read more about sterling's recent rise.
In recent action, the pound traded at $1.6441, down about 0.8% from Tuesday.
The currency continues to show little reaction to political turmoil in the United Kingdom. See coverage of Question Time in Parliament from Times Online.
Resignations in the wake of a long-running newspaper probe into lawmakers' abuse of parliamentary expense policies have decimated Prime Minister Gordon Brown's cabinet ahead of county council and European Parliament elections that are expected to produce bleak results for Brown's ruling Labour Party.
