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TOKYO, Sep 22 (Reuters) The dollar traded near two-week lows against the euro and the yen on Friday after data showed more signs of a slowdown in the U.S. economy, keeping expectations high that interest rates will stay on hold.

The U.S. currency was stung after the Philadelphia Federal Reserve's business activity survey for September showed its first negative reading in over three years, indicating a significant decline in manufacturing in the mid-Atlantic region.

Thursday's data drove the dollar down nearly 1 percent against its two major rivals, and dealers said that the U.S.

currency was becoming more vulnerable to soft economic figures.

''The dollar has been facing weak data recently, but the market had been finding it difficult to sell the currency,'' said Takehiko Jimbo, forex manager at Mitsubishi UFJ Trust and Banking.

''The weak Philly Fed has finally triggered some selling.'' He added that, given other recent data showing cooling in the U.S. economy and waning inflation risks, the market may be taking steps towards factoring in the possibility that the Federal Reserve might cut rates this year.

The central bank kept overnight rates unchanged at 5.25 percent earlier this week.

Early in the Tokyo session, the dollar was at 116.25 yen around a two-week low after tumbling 0.9 percent on Thursday.

Still, some traders said that the dollar could be supported in Tokyo trading as domestic importers were seen waiting to buy the currency, which has fallen from a five-month high of 118.29 yen hit earlier in the week.

Also, a statement from the president of Ecuador on Thursday that the country needed to renegotiate its bond repayments could also support the dollar as the news could prompt investors to shed risky assets in favour of U.S. Treasuries.

Ecuador, which defaulted on $6.5 billion of debt in 1999, holds about $11 billion in dollar-denominated bonds, of which about $1 billion mature within a year.

The euro was near a two-week high at $1.2795 after rising 0.8 percent a day earlier.

The single currency was little changed at 148.70 yen. The yen has been climbing against the euro this week, pulling further away from a record low of 150.73 yen hit late last month.

The Japanese currency has been buttressed by investors unwinding built-up short yen positions this week, particularly against the euro, which dealers said could keep the yen supported in the short term.

Underscoring the view that Japan's economic recovery remains intact, the government's business survey index (BSI) on sentiment at large manufacturers rose to plus 12.7 in the July-September quarter from plus 1.4 in April-June.

Reuters DKS VP0626