Dollar rises, snaps two-day decline

By Lucia Mutikani

NEW YORK (Reuters) - The U.S. dollar rose on Wednesday, snapping a two-day losing streak, supported by perceptions that slowing global economic growth would prompt a wave of interest rate cuts outside the United States.

The greenback clung to gains in quiet trade despite a rebound in crude oil prices to around $115 a barrel. The dollar index came within striking distance of its 2008 highs touched on Tuesday.

"The perception overall is that the economic and interest rate outlook still are supportive of the dollar and in the bigger picture, the dollar remains in buy-the-dips-mode for now," said Ronald Simpson, head of global currency analysis at Action Economics in Tampa, Florida.

Data from Europe and Japan are increasingly pointing to a deterioration in the growth outlook for those regions, leading investors to anticipate early rate cuts from both the European Central Bank and the Bank of England.

Such a step would shift the yield appeal in the dollar's favor, with the Federal Reserve expected to start raising interest rates next year, provided there are no major shocks from the U.S. financial sector.

The ICE Futures U.S. dollar index, which measures the dollar's value against a basket of six currencies, rose to a session high of 77.24 -- not far from its highest level this year at 77.413. It was last up 0.3 percent at 76.960.

The euro dropped to an intraday low of $1.4673, within spitting distance of its six-month low around $1.4631 hit on Tuesday, according to Reuters data. It was last down 0.3 percent at $1.4737.

"The euro has been trying hard over the last days to make some form of sustained bottom and create a little bit of a counter-trend rally. As it rallies to 1.48, it tends to get sold," said Boris Schlossberg, director of FX research at GFT Forex in New York.

"Unless it takes out the 1.48 level and maintains that level, the bias is very much to the down side. Every (euro) rally is still very much a sell mode. Until the market psychology exhausts that whole dynamic, it's pretty much the story for the day."

Data on Wednesday showed that euro zone construction shrank by 0.6 percent in June from May, a factor that was also weighing on the euro against both the dollar and yen.

At the same time, Japan's all-industries index, which covers a broad range of economic activity including the tertiary activity index, fell 0.9 percent in June from the previous month.

The dollar firmed 0.1 percent to 109.81 yen, after earlier rising to 110.27 yen. Those gains were eroded as U.S. crude futures reversed early losses in choppy trade and worries over the health of the country's financial sector lingered.

There are worries that U.S. home finance providers Fannie Mae (FNM.N) and Freddie Mac (FRE.N) may need a government bailout.

Euro zone PMI and UK retail sales data on Thursday will likely provide more evidence of slowing growth in the euro area and Britain, analysts said.

(Additional reporting by Gertrude Chavez-Dreyfuss; Editing by Kenneth Barry)