LONDON, Oct 4: The euro weakened against the dollar on Friday after data in the United States showed that the unemployment rate had slipped to 5.6 per cent in September, despite anemic jobs growth.

The single European currency edged down to 0.9826 dollars from 0.9876 late on Thursday in New York.

The dollar rose to 123.05 yen from 122.68 on Thursday.

Investors were initially not quite sure what to make of the US employment data, which came a day after two other sets of stronger-than-expected US economic figures.

“There was a fairly confused reaction in the currency market to the data,” Halifax chief currency strategist Steven Pearson said.

“The headline looked bad, but the strength was in the fall in unemployment and the revision in last month’s figures,” Pearson said.

While nonfarm payroll data declined in September by 43,000 jobs in the first drop since April, the unemployment rate fell to 5.6 per cent, the lowest level since January. August payroll numbers were revised to 107,000 from a previous estimate of 39,0000.

However, the dollar’s gains were capped by concerns that the figures may lessen the likelihood that the US Federal Reserve will cut interest rates, dealers said.

Initially, US stocks rose in a kneejerk reaction that the poor payroll figure had increased rate cut prospects, but they came back down as market participants digested the full release.

Sterling followed the euro lower against the dollar despite a week of relatively firm data.

Figures released earlier showed service sector activity in the euro zone contracted for the first time in nine months in September, prompting speculation about a possible reduction in European interest rates.

“It’s more worrying news for euro zone growth,” said Credit Agricole Indosuez economist Mitul Kotecha.

“We look at a picture of forward-looking data in Europe, and they’re all pointing to further weakness ahead, with quite a sharp slowdown in the New Year,” he added.

Kotecha said the figures would inevitably put the European Central Bank under pressure to cut rates.

The euro was changing hands at 0.9826 dollars against 0.9876 late on Thursday in New York, 120.91 yen from 121.18, 0.6264 pounds (0.6288) and 1.4626 Swiss francs (1.4599).

The dollar was being quoted at 123.05 yen (122.68) and 1.4883 Swiss francs (1.4779).

The pound was at 1.5687 dollars (1.5700), 193.02 yen (192.65) and 2.3347 Swiss francs (2.3204).

On the London Bullion Market, the price of an ounce of gold rose to $320.30 from $322.10 late on Thursday.—AFP