Array

LONDON, Mar 1 (Reuters) The dollar slipped against most major currencies on Wednesday on the back of Tuesday's weak U.S. economic data, while the euro found support from the fastest growth in the euro zone's manufacturing sector in 19 months.

The yen briefly scored a one-month high versus the greenback on expectations the Bank of Japan will soon end its ultra-easy monetary policy and after a senior Chinese currency official was quoted as saying that China would soon make the yuan ''basically convertible'' on the capital account.

''On the U.S. data front we did not get very reassuring numbers.

To confirm market expectations in respect of Federal Reserve tightening this year, we need significantly stronger numbers,'' said Michael Klawitter, senior currency strategist at West LB in Duesseldorf.

Wednesday's strong European data -- euro zone manufacturing sector grew at its fastest pace in 19 months in February but companies continued to cut jobs, an RBS/NTC PMI survey showed -- precedes Thursday's European Central Bank meeting which is expected to raise interest rates 25 basis points to 2.5 per cent.

''In the euro zone numbers have been better than expected. In respect to the second half of the year the market is too cautious on the ECB and future rate hikes,'' Klawitter said.

By 1245 GMT (1815 IST), the euro was up 0.18 per cent at $1.1941.

The dollar was up 0.3 per cent at 116.10 yen after buying from Japanese importers and institutional investors pushed it away from a one-month low of 115.46 set earlier.

The single currency was up 0.5 per cent at 138.62 yen after hitting a six-week low near 137.20 on Monday.

The Canadian dollar was at C$1.1383 per U.S. dollar, hovering near the 14-year high of C$1.1345 set this week.

U.S. DATA WOES Weaker-than-expected business activity data from the U.S.

Midwest, a slip in consumer confidence, and a fall in the sales of existing U.S. homes on Tuesday fanned speculation the Federal Reserve might not have much room to raise interest rates beyond an expected rise to 4.75 per cent in March.

''The theme in the market remains interest rate differentials, it's not surprising to see the dollar come under some pressure,'' said Klawitter.

Another heavy load of U.S. data is due later on Wednesday, including the January core PCE index at 1330 GMT (1900 IST), the Fed's favoured inflation gauge, and the ISM manufacturing index for February at 1500 GMT (2030 IST).

Concerns that U.S. opposition to a UAE firm taking control of U.S. ports could deter Gulf states from seeking further U.S.

investments was also undermining the dollar.

UAE Economy Minister Sheikha Lubna al-Qassimi told Reuters in an interview that other markets in Asia and Europe might prove more attractive to wealthy Arabs and other investors if U.S. politics made obstacles for commercial deals.

''From a sentiment standpoint, it's not good for the dollar,'' said Paul Mackel, foreign exchange strategist at ABN AMRO.

JAPAN INFLATION KEY Investors are also focused on Friday's release of Japanese inflation data to see if a recent rise in consumer prices is sustainable enough to meet the BOJ's condition for scrapping the five-year-old easy monetary policy.

BOJ policymakers gather next week, when some analysts expect them to start the process of a shift away from the current policy, before another meeting in April.

The yen has also been boosted by mounting speculation ahead of Chinese President Hu Jintao's planned visit to Washington in April that China will let the yuan strengthen further after it was revalued last July.

The yuan hit a new post-revaluation high against the dollar for the fourth day on Wednesday.

''The yen also got a boost from the China story because the yen is a yuan proxy,'' said Daragh Maher, senior currency strategist at Calyon.

REUTERS SD PM1952