The dollar rose broadly on Thursday as investors bet that the perceived likelihood of more U.S. interest rate cuts will help avoid a recession.

Lower rates typically make dollar-denominated securities less attractive and reduce demand for the dollars to buy them but given concerns about problems with the U.S. housing market and credit markets, signs the Fed will continue to act to help the U.S. economy strengthen should attract investment inflows.

Expectations of a Federal Reserve rate cut next month and of more to come in 2008 got a boost on Wednesday after Fed Vice Chairman Donald Kohn said that renewed financial market turmoil could slow the U.S. economy more abruptly than thought.

Reports on Thursday showing a jump in U.S. weekly jobless claims and third quarter U.S. economic growth relatively in line with expectations had little impact on the dollar.

Though the market had already priced in an interest rate cut, this was a far more dovish speech than we have heard from other recent Fed speakers, said Camilla Sutton, currency strategist at Scotia Capital in Toronto, in a note to clients on the Kohn speech. The fact that the Fed seems more concerned about the broader economy than it previously did, did not seem to phase markets, which focused squarely on the prospect of lower rates.

Early in New York the dollar was up 0.7 percent against a basket of major currencies at 75.614, moving away from the record low of 74.712 struck last week.

Overstretched positioning in the dollar, which has in recent weeks scaled historic troughs against a number of currencies, made it particularly vulnerable to a correction, analysts said.

The euro was down 0.6 percent against the dollar at 1.4741. Dollar/yen was down 0.2 percent at 109.88.

Kohn's comments were consistent with the Fed's Beige Book report, which said the U.S. economy from October to mid-November grew at a slower pace than in the previous period. The report, an anecdotal summary of economic conditions, also said U.S. housing demand was quite depressed.

I think the market will move towards another 50 basis points (cut) but counterintuitively that's probably helped (the dollar), said Adam Myers, market strategist at Credit Suisse in London.

If we do get another 50 basis points that will really placate money markets and it may placate equity markets as well. If that is the case ... the dollar will do well into January and then it will start to weaken again, he said.


Myers at Credit Suisse said the euro would likely rally in 2008, taking it to $1.52 in the second quarter as the dollar will be without any yield advantage and still with the serious credit problem.

In the shorter term, negative sentiment on the dollar could resurface in case of a weak reading from the U.S. October new home sales data at 10 a.m.

In 2007 new home sales have already plunged 25 percent, said ING in a note to clients. In the next few months, with sales conditions unlikely to improve significantly if at all, we expect new home sales to reach fresh multiyear lows.

Investors will also be looking to a speech by Fed Chairman Ben Bernanke at 6 p.m.

The Fed slashed overnight lending rates by a half percentage point in September and by a further quarter point in October, bringing them to 4.5 percent. The central bank next meets on December 11 and is seen cutting rates to 4.25 percent.

The Bank of England is widely seen as the next major central bank to follow the Fed down the rate-cutting path -- a view which was reinforced on Thursday by a fresh batch of soft housing data, putting pressure on sterling. Sterling/dollar fell 0.9 percent to 2.0611.

(Reporting by Nick Olivari in New York and Toni Vorobyova in London; Editing by James Dalgleish)