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Dollar extends gains on strong US services and factory data

The U.S. dollar extended a broad-based rally on Tuesday after stronger-than-expected economic data, including an 8-1/2 year high in the pace of services sector growth and a bigger-than-expected increase in factory orders.

Earlier, European service sector data was mixed, with growth across much of the euro zone although a drop in Italy underlined the fragile economic outlook for the region and built expectations the European Central Bank will pump yet more euros into the financial system in an effort to boost growth.

The euro fell to a fresh nine-month low under $1.34, down around 0.40 percent on the day. The U.S. dollar index, which measures the greenback against a basket of currencies made up of its largest trading partners, rose to a 10-1/2 month high around 81.63.

The Institute for Supply Management said its services index rose to 58.7 last month, the highest since December 2005, from 56.0 in June. The reading blew past economists' forecasts for 56.3, according to a Reuters survey. A reading above 50 indicates expansion in the sector.

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The Commerce Department said on Tuesday new orders for manufactured goods increased 1.1 percent in June after a downwardly revised 0.6 percent decline in May.

Flirting

Sweden has been symbolic of Europe's flirtation with very low inflation, or even falling prices, this year, but its services PMI for July shocked by surging to 60.1 points from 54.6 a month earlier. The euro fell against the Swedish currency, dropping 0.31 percent to 9.2114 crowns.

Sterling gains against the greenback slipped after the U.S. data. The Bank of England monetary policy is not expected to change after its meeting concludes later this week.It was virtually flat near $1.69. The greenback hit a three-month high against the Canadian dollar of C$1.0968, up 0.51 percent.

—By Reuters

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