Oct. 5 (Bloomberg) -- The dollar may rise against the euro before a government report forecast by economists to show U.S. hiring rebounded last month, which would suggest the economy is weathering the housing slump.

The Federal Reserve on Sept. 18 reduced the target rate for overnight lending between banks a half-percentage point after employers unexpectedly cut jobs in August for the first time in four years. European Central Bank President Jean-Claude Trichet signaled yesterday that policy makers won't raise borrowing costs anytime soon.

``An employment number above 90,000 will set the outlook for the U.S. economy in a more positive light and cause the dollar to continue to recover,'' said Brian Dolan, chief currency strategist at FOREX.com, a unit of online currency trading firm Gain Capital in Bedminster, New Jersey. ``We're at the cusp where the gloom and doom over the U.S. is lifting, and we're seeing some of that gloom appear in Europe.''

The dollar traded at $1.4138 per euro at 6:12 a.m. in Tokyo after falling 0.3 percent yesterday. The U.S. currency has appreciated about 1 percent against the euro since reaching the all-time low of $1.4283 on Oct. 1. The dollar traded at 116.46 yen after decreasing 0.2 percent yesterday.

The Labor Department will probably report today that U.S. employers added 100,000 jobs last month after a loss of 4,000 jobs in August, according to the median forecast of 83 economists surveyed by Bloomberg News. The unemployment rate is expected to rise to 4.7 percent.

Companies added 58,000 jobs last month after a revised increase of 27,000 in August that was less than previously estimated, ADP Employer Services reported Oct. 3.

Services Employment

The employment portion of the Institute for Supply Management's index of non-manufacturing businesses rose to 52.7 in September from 47.9 the prior month, the Tempe, Arizona-based group said Oct. 3. Services industries make up almost 90 percent of the U.S. economy.

The number of U.S. workers filing first-time claims for unemployment benefits rose more than forecast last week, the Labor Department reported yesterday. Applications increased to 317,000 in the week that ended Sept. 29 from a revised 301,000 the previous week.

Interest-rate futures yesterday showed traders saw a 70 percent chance that the Fed will cut its 4.75 percent target rate a quarter-percentage point at its Oct. 31 meeting. The likelihood was 88 percent a week ago.

The Frankfurt-based ECB yesterday held its benchmark rate steady at 4 percent. Only one of 55 economists surveyed by Bloomberg News had forecast an increase to 4.25 percent.

Trichet Seeks Data

``It remains necessary to gather additional information and examine new data before drawing further conclusions for monetary policy,'' Trichet said at a news conference in Vienna yesterday.

Trichet also said that while the bank's outlook on growth ``has not been modified,'' he said ``downside risks'' had increased. He expected inflation to remain ``significantly'' above 2 percent for the rest of this year and in early 2008 before moderating.

``Trichet signaled slowing growth in the euro zone, which suggests no rate hike is in the cards over the next two to three months,'' said Robert Fullem, vice president of U.S. corporate currency sales in New York at Bank of Tokyo-Mitsubishi UFJ Ltd. ``People who expected a more bullish rate outlook were disappointed.'' `

The implied yield on December's Euribor futures contract fell 0.03 percentage point to 4.59 percent yesterday. The contract settles to the three-month interbank offered rate for the euro, which has averaged about 0.16 percentage point above the ECB's key rate since 1999.

Bank of England

The Bank of England yesterday left its benchmark interest rate at 5.75 percent, a six-year high. The pound rose 0.3 percent versus the dollar.

Former Fed Chairman Alan Greenspan said in Lisbon this week that higher credit costs are coming down as investors become more willing to buy some of the securities most hurt by the collapse of the subprime mortgage market.

Citigroup Inc. and Bank of America Corp., the two biggest U.S. banks, advised clients to buy the dollar against the euro, forecasting the U.S. currency will strengthen to $1.3850. The dollar will rise to $1.40 by year-end, according to the median of 45 analyst forecasts compiled by Bloomberg News.

To contact the reporters on this story: Bo Nielsen in New York at bnielsen4@bloomberg.net

Last Updated: October 4, 2007 17:16 EDT