RTTNews - The dollar went back on the defensive Thursday afternoon as traders reacted to a pair of key economic reports and concerns that light on the economic horizon may be a mirage.

The number of people filing first-time unemployment claims jumped more than expected last week, challenging a rising hope that layoffs were on their way down and that the labor market was on the road to stability.

The U.S. Labor Department said initial jobless claims, a closely-watched measure of layoffs, jumped to 637,000 for the week ended May 9th. This was up 32,000 from the previous week's revised total of 605,000.

Producer prices increased by a little more than expected in the month of April, according to a report released by the Labor Department on Thursday, with the increase in prices partly due to a rebound in food prices.

The report showed that the producer price index rose 0.3 percent in April following an unrevised 1.2 percent decrease in March. Economists had been expecting a slightly more modest increase in prices of about 0.2 percent.

The dollar tailed off badly against the euro after holding its ground in early dealing. With risk appetite on rise, the dollar slipped to 1.3650, losing a penny. Earlier in the week, the dollar fell to a 7-week low of 1.3721.

Thursday, the European Central Bank said in its Monthly Bulletin that the Eurozone annual HICP inflation rate is expected to stay below 2% in 2010, reflecting ongoing sluggish demand in the euro area and elsewhere.

ECB Vice President Lucas Papademos said despite a sharp downturn in the first quarter, the Eurozone economy is expected to recover sooner than anticipated.

The dollar dropped in mid-day dealing versus the sterling, losing almost 2 cents to 1.5245. With the loss, the dollar moved back toward a 4-month low of 1.5352.

Against the yen, the dollar was steady after seeing big losses so far in May The dollar was at 95.80 after hitting a 2-month low of 95.10 earlier in the day.

The markets across the Asia-Pacific region tumbled on Thursday. Tokyo's benchmark Nikkei 225 index fell 247 points or 2.64% to 9,094, the lowest closing in about two weeks. The Hang Seng of Hong Kong lost 3%.

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