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Dollar Rebounds vs. Euro, Yen as U.S. Stocks Rise

The dollar rebounded against the yen and euro Thursday as investors resumed buying the U.S. currency after nearly a week of declines, although expectations of a cut in U.S. interest rates capped gains.

Against a basket of major currencies, however, the greenback languished near a 15-year low and was within reach of a record low against the euro as investors braced for the Federal Reserve to cut benchmark overnight rates next Tuesday.

Anticipation of a slew of U.S. economic data due on Friday also limited price action.

"The broad sell-off in the dollar over the past week or so has likely given way to some moderate profit-taking in the very short term and ahead of August's retail sales tomorrow and the Fed decision on Tuesday," said Dustin Reid, senior currency strategist at ABN Amro in Chicago in a research note.

The dollar has been under pressure since last week's unexpectedly weak August U.S. jobs report fueled speculation that the Fed may cut the 5.25% federal funds overnight target rate by as much as half a percentage point.

The employment report suggested the U.S. economy may be suffering more than previously thought from recent turmoil in financial and credit markets, sparked by trouble in the U.S. subprime mortgage sector, where delinquencies are rising on loans extended to borrowers with spotty credit histories.

Lower interest rates and slower growth combine to diminish the allure and return of dollar-denominated assets.

The dollar strengthened against the euro .

Against the yen, the dollar rose more than 1% as U.S. equities advanced. The euro also gained versus the Japanese currency.

Analysts cited short-term position adjustments as well as uncertainty after Prime Minister Shinzo Abe's shock resignation announcement as also weighing on the Japanese currency.

"People are feeling a bit bolder, though I'm scratching my head a bit on equities, as I thought they wouldn't be doing this well," said Dixon Fung, head of currency trading at MG Financial in New York.

The Swiss franc was little changed against the euro after the Swiss National Bank surprised markets by raising interest rates by a quarter percentage point on Thursday. The dollar was up against the Swiss franc.

The Canadian dollar surged to a 30-year high against the U.S. dollar, helped in part by rising oil prices.

A report showing a lower-than-expected rise in U.S. jobless claims during the previous holiday-shortened week had limited impact on the dollar.

Investors are focusing instead on Friday's data, including retail sales for August, as any signs of weakness in consumer spending would likely weigh on the dollar.