Curses nurses losses after hit from downbeat GDP report

The dollar pulled away on Monday from lows it hit following disappointing U.S. growth figures late last week, while the yen pared some of the large gains it made after the Bank of Japan unveiled a much smaller stimulus than was expected.

U.S. gross domestic product grew at an annual 1.2 percent in April-June, Commerce Department figures showed on Friday, falling far short of the 2.6 percent increase forecast by economists polled by Reuters.

"The U.S. dollar advance was stopped in its tracks by the disappointingly weak Q2 GDP figures," Marc Chandler, global head of currency strategy at Brown Brothers Harriman, said in a note.

The dollar index's next immediate technical target is 94.75, he said, as market speculation of a near-term interest rate hike continues to fade.

"The FOMC statement earlier in the week did not leave the impression that a September hike was likely, and with the poor growth numbers, the odds were downgraded further," Chandler said.

New York Fed President William Dudley said at an international central bankers conference in Bali on Monday that the central bank could hike rates before the November U.S. election if the economy and labour market improve quickly, although he added the Fed should be cautious when considering a hike because of lingering risks to the U.S. economy.

Dallas Fed President Robert Kaplan told reporters after the GDP came out that the Fed should not overreact to Friday's weaker-than-expected growth report, but needed to consider more data before contemplating another hike.

Interest rate futures implied a 33 percent chance on Friday that the Fed would raise rates by year-end, down from 43 percent on Thursday, CME Group's FedWatch gauge showed.

The weaker-than-expected GDP report followed a strong U.S. non-farm payrolls report for June, as well as improving inflation, retail sales and jobless claims data, that had prompted many investors to increase their dollar positions.

Speculators raised their bullish U.S. dollar bets to the highest level in nearly five months, with the value of the dollar's net long position increasing to $13.66 billion in the week ended July 26 from $10.42 billion the previous week, according to Reuters calculations and data from the Commodity Futures Trading Commission released on Friday.

The nonfarm payrolls report for July will be published on Friday. Economists polled by Reuters project a gain of 175,000 jobs, down from June's 287,000 increase. The unemployment rate is seen holding steady at 4.9 percent.

The dollar added 0.4 percent to 102.42 yen, after whipsaw trading in Friday's session in which it ranged from a low of 101.97 to a high of 105.75. The euro rose 0.3 percent to 114.47 yen.

The BOJ disappointed market hopes on Friday that it might increase its already massive buying of Japanese government bonds or take already negative interest rates lower. Instead, it increased its purchase of exchange-traded funds to 6 trillion yen and kept interest rates at minus 0.1 percent, leading some strategists and investors to conclude that policymakers are running out of options.

Investors might also be disappointed this week with the amount of direct fiscal spending in the government's 28 trillion yen ($273 billion) stimulus package, which is set to be approved by Prime Minister Shinzo Abe's cabinet on Tuesday.

Direct fiscal spending will total only about 7 trillion yen, two people briefed on the matter told Reuters on Thursday.

"Already the amount was leaked, and the market is bracing for it," said Tohru Sasaki, head of Japan market research at JPMorgan Chase Bank in Tokyo.

"The market will not be surprised in a good way," he said.

The euro edged up 0.1 percent to $1.1176 while sterling added 0.2 percent to $1.3251, with investors focused on the Bank of England's decision on Thursday.

A Reuters poll of economists published last week predicted the British central bank would cut its benchmark bank rate for the first time since 2009 to 0.25 percent from 0.50 percent, but most said it would not revive its massive bond-buying programme for now.

Major currencies had a muted reaction to surveys on China's factory sector.

The Caixin/Markit Manufacturing Purchasing Managers' index (PMI) rose to a 1 1/2-year high of 50.6, beating market expectations of 48.7 and up from 48.6 in June. But an official survey showed factory activity slipped in July.

"It gave the Aussie a modest boost," said Sue Trinh, senior currency strategist at RBC Capital Markets in Hong Kong.

The Australian dollar was slightly higher at $0.7608.