The dollar touched a seven-month low against the yen on Thursday as Chinese and U.S. economic reports added to investors' uncertainty about the global economic recovery.

Chinese manufacturing PMI data showed slower growth in June, heightening concerns over the global economic recovery and weighing on high-yielding currencies.

The dollar fell further against the yen after reports on U.S. manufacturing, claims for jobless benefits and pending home sales added to concern about both the U.S. and global recovery.

The euro, however, gained broadly after European banks borrowed less money than expected from a European Central Bank's tender, cooling concerns over euro zone banks' funding issues.

The single currency was also supported by Madrid's ability to sell five-year bonds following Moody's Investors Service decision on Wednesday to put Spain's sovereign rating on review for possible downgrade.

Weaker than expected Chinese manufacturing data overnight fanned concerns about the outlook for the world's third largest economy and engine of global recovery, said Omer Esiner, chief market analyst at Commonwealth Foreign Exchange, Inc. in Washington. Unlike the greenback, the yen did benefit from the broad pullback in risk appetite, rising to a new seven-month peak against the U.S. dollar.

A successful Spanish bond auction and lower than expected demand for short-term loans from the European Central Bank alleviated liquidity concerns in the 16-member bloc and buoyed the euro, Esiner said.

In early New York trade, the dollar was down 1.4 percent against the yen at 87.15 after going as low as 87.14, according to Reuters data. The low on electronic trading platform EBS was 87.11, its weakest in seven months.

The euro advanced 1.7 percent to $1.2445 according to Reuters data, extending gains for a second day and rebounding from a two-week low around $1.2150 hit earlier in the week. It was the biggest one day advance since May 19 at current prices.

Against the Swiss franc the euro was last up 0.1 percent at 1.3201 francs after earlier hitting 1.3073 on EBS, its weakest since its 1999 launch. The dollar was down 1.6 percent against the franc, earlier touching its lowest since mid April.

But the six-day ECB tender led to speculation European banks may not be as desperate for funds as had been thought, helping the euro to hold gains.

Thursday's ECB tender followed an offer of three-month funding the previous day, which received less bids than expected, indicating banks were fairly well positioned to repay ECB's 442 billion euros emergency loans on Thursday.

Against the yen, the euro was up 0.4 percent at 108.55 yen, recovering from an 8 1/2-year low hit this week.


Investors hoping for positive signs of U.S. recovery were disappointed.

The U.S. manufacturing sector grew in June for an eleventh straight month but at a slower rate than expected, according to an industry report. June marked the second straight month of slower growth.

And contracts for pending sales of previously owned homes plunged a record 30 percent in May, far more than expected, after a tax credit expired the prior month, a survey from the National Association of Realtors.

An earlier report showed the number of U.S. workers filing new applications for unemployment insurance rose unexpectedly last week.

Investor focus is now turning to the U.S. non-farm payrolls report for June set for release on Friday.

Investors are very wary of over-exposure to the dollar ahead of such a key event tomorrow, said Commonwealth Foreign Exchange's Esiner.

(Additional reporting by Wanfeng Zhou in New York, Editing by Chizu Nomiyama)