* Spanish yields rise, weigh on euro
* US jobless claims fall to lowest in more than 5 years
* BoE keeps rates steady, supports sterling
By Gertrude Chavez-Dreyfuss
NEW YORK, May 9 (Reuters) - The dollar rallied across the
board on Thursday, bolstered by an upbeat U.S. jobless claims
report that suggested a stabilizing labor market in the world's
largest economy.
The euro, meanwhile, faltered against the dollar after two
days of gains, pressured partly by a weaker-than-expected
Spanish debt auction, which served as a reminder to investors
that the outlook for the euro zone's weaker nations remained
uncertain.
But it was U.S. economic data and the dollar that caught the
market's attention.
On the heels of a robust U.S. non-farm payrolls report last
Friday, initial claims for state unemployment benefits fell to
its lowest level since January 2008, the Labor Department said
on Thursday. The claims dropped 4,000 to a seasonally adjusted
323,000. Economists polled by Reuters had expected first-time
applications to rise to 335,000 last week.
"The report reinforced expectations that the U.S. economy
remains best placed to begin gaining traction in its recovery
efforts compared to counterparts (in the developed world)," said
Samarjit Shankar, director of market strategy, at BNY Mellon in
Boston.
He cited dollar buying over the last five days that was
almost twice as strong as the average greenback inflows seen
over the past year.
In midday trading, the dollar index rose 0.4 percent
to 82.199, while the greenback climbed 0.3 percent to 99.31 yen
after trading in negative territory earlier in the global
session.
Kathy Lien, managing director, at BK Asset Management in New
York, said the jobless claims report will keep discussions alive
about winding down asset purchases by the Federal Reserve.
"That should help the dollar at a time when other major
central banks are actively weakening their currency through
lower interest rates or currency intervention," she said.
EURO STUMBLES
The euro fell to session lows of $1.3083, failing to
build on gains made after robust industrial data from Germany
this week. It was last at $1.3103, down 0.4 percent on the day.
Against the yen, the euro slipped 0.1 percent to 130.11
.
"Not aiding the euro was a softer-than-expected Spanish
issue. Dealers ended up owning quite a bit of it, which
suggested that there was weaker demand," said Dean Popplewell,
chief currency strategist at OANDA in Toronto.
"That has prompted the euro to back away from its highs."
Spain's borrowing costs also rose on Thursday to 4.19
percent on speculation the country was planning a syndicated
deal in the near future, suggesting there would be a lot of
supply in a short period of time. Spanish yields have
risen in four of the last five sessions.
Investors also looked to book profits in Europe's shared
currency after it rose for two straight days. Market
participants were unwilling to hold euros for a longer period
given the threat of more monetary easing from the European
Central Bank, a move that should further erode yields on bonds
issued by euro zone sovereigns.
Bundesbank chief Jens Weidmann on Thursday said the ECB is
still able to take policy action to address the euro zone crisis
even after cutting its main interest rate last week, a German
newspaper reported. This follow remarks from ECB policymakers
Yves Mersch and Joerg Asmussen, who said on Wednesday the
central bank still had room to maneuver on interest rates should
the euro zone economy continue to weaken.
The ECB cut its main rate to 0.5 percent last Thursday.
While German industrial data this week beat expectations,
overall economic activity across most of the euro zone remains
sluggish, keeping alive expectations the ECB may act again soon.
The single currency also lost ground against the British
pound after the Bank of England kept interest rates
on hold and left its asset buying programme unchanged.
The euro last traded at 84.50 pence,
down 0.2 percent.
Sterling rose to a session high of $1.5586 against
the dollar after the BoE decision, from $1.5568 beforehand. But
it was last at $1.5502, down 0.2 percent, hurt by the dollar's
overall strength.
The euro also fell against the Australian and New Zealand
dollars , which were buoyed by
better-than-expected jobs numbers. Both currencies rebounded
from lows struck after their central banks moved this week to
tame their strength.
