WASHINGTON ? The US dollar fell Thursday against most key currencies as sentiment for the greenback was dampened by expectations of slower US economic growth.

The euro rose to $1.3076 in New York at about 2100 GMT from $1.2992 late Wednesday.

The single European unit had in early trading Thursday scaled $1.3107, its strongest level since May 4, on reports of strengthening eurozone confidence and an improvement in Germany's employment picture.

The euro also drew support from news of an unexpected fall in first-time claims for US jobless benefits, a report that emboldened investors to seek out currencies such as the euro seen as riskier than the dollar.

The dollar also dropped against the Japanese currency, to 86.80 yen from 87.45.

Ahead of a key government report Friday expected to show the US recovery is losing pace, a top Federal Reserve official said the US economy risked "Japanese-style" stagnation.

Bluntly cautioning about "the peril" of deflation, James Bullard ? a member of the Fed's interest rate-setting panel ? said the United States was closer to a Japanese-style lost decade "than at any time in recent history."

On Friday, the US government will publish its growth estimates for the second quarter. Analysts expect gross domestic product to have slowed to 2.5 percent in the period, down from 2.7 percent in the first three months of the year.

"The recent price in the foreign exchange markets indicate that investors really want to sell US dollars," said analyst Kathy Lien of Global Forex Trading.

"Who can blame them when most economic reports show continued weakness in the US economy, the central bank is sounding dovish while policymakers in other parts of the world are raising interest rates," she said.

Lien said second quarter growth could be even weaker than the market?s current forecast of 2.5 percent.

Against other key currencies, the dollar fell to 1.0407 Swiss francs from 1.0562 on Wednesday while the British pound rose to $1.5607 from 1.5598.