TOKYO -- The dollar rose against the euro on Thursday, recovering some ground made after steep US job losses in the private sector, as some traders thought the greenback's slide the previous day was too sharp.

The dollar's rebound was helped by its gains versus the Australian dollar after a shocking slump in home building approvals reinforced the case for further cuts in interest rates for the country to avoid recession.

The dollar dropped from one-month highs against the euro and the yen on Wednesday following a dismal report from ADP Employer Services that showed private employers shedding a staggering 693,000 jobs in December.

Those figures and comments from a Federal Reserve official cast more shadows on the outlook for US non-farm payrolls data due on Friday, and highlighted the challenges facing President-elect Barack Obama as he plans for a large economic stimulus package.
A sharp fall on Wall Street also underscored fears of a prolonged US recession and hurt sentiment for the dollar.

But traders said the previous day's fall in the dollar had been exaggerated in a market with few active participants such as hedge funds which typically provide liquidity to currency trading.

"The euro's jump against the dollar yesterday came across as too much, too fast, even though the job loss number from the US private sector was an eye-popping one," said a trader at a Japanese bank.

The euro fell 0.4 percent from late New York trade to $1.3584, after having risen as high as $1.3747 on Wednesday on trading platform EBS.

The euro had dropped a one-month low of $1.3312 earlier this week as the dollar had been bought broadly since the start of the year on hopes for the economic stimulus package from the Obama administration.

The single currency fell 0.2 percent to 126.05 yen.

The dollar was nearly flat at 92.61 yen, recovering from a near two yen fall the previous day. The dollar had hit a one-month high of 94.65 yen on Tuesday on EBS.

The US economy is likely to contract through the middle of 2009, Kansas City Fed President Thomas Hoenig said on Wednesday.

Traders now await interest rate decisions from the Bank of England expected at 1200 GMT. The central bank is seen cutting interest rates by at least another 50 basis points to 1.5 percent -- taking them to a level not seen since the BoE was created in 1694 -- just a month after it slashed them 100 basis points.

The Aussie dropped 1.2 percent to $0.7042, falling from a three-month high around $0.7270 hit the previous day.

The Aussie slipped 1.3 percent to 65.28 yen, off a two-month high above 68 yen touched earlier this week, as investors turned wary about higher-yielding currencies and riskier assets as Asian shares tracked US stocks lower on renewed fears about a sharp global slowdown.