May 2 (Bloomberg) -- The dollar may extend its gain against the euro and yen as signs of resilience in the manufacturing and service industries allay concern about slowing U.S. growth.

The U.S. currency strengthened yesterday after a private report showed an index of manufacturing rose to the highest level in almost a year, leading traders to reduce bets on a cut in borrowing costs by the Federal Reserve. A government report today may show factory orders accelerated in March, while a private report tomorrow may show services industries gained strength.

``There are some signs of pickup in economic activities, which provided a bit of support for the dollar in the short term,'' said Mike Moran, senior currency strategist in New York at Standard Chartered Bank. ``The feasibility for the Fed to cut rates is still poor, though in the longer term the market is still set for a weaker dollar.''

The dollar traded at $1.3608 per euro and 119.80 yen at 6:06 a.m. in Tokyo. It rose 0.3 percent yesterday against the 13- country euro and 0.3 percent versus the yen. The dollar dropped to the all-time low of $1.3681 against the euro on April 27 on expectations U.S. growth will trail that of Europe.

The U.S. dollar has lost 3.1 percent this year against the euro, 5.4 percent versus the New Zealand dollar and 2.1 percent against the pound. Hedge funds and other traders built record short dollar positions against the euro last month.

Factory Orders

Orders placed with U.S. factories probably increased 2.2 percent in March after a 1 percent gain the previous month, according to the median forecast of 65 economists surveyed by Bloomberg News. The Commerce Department will release the report at 10 a.m. today in Washington.

The Tempe, Arizona-based Institute for Supply Management is forecast by economists to report tomorrow that its index of non- manufacturing businesses including banks, builders and retailers rose to 53 in April from 52.4 the previous month.

Any advance in the dollar may be limited before a government report later this week that is forecast to show U.S. job growth decelerated in April.

The Labor Department will probably say on May 4 that U.S. employers added 100,000 jobs last month, the fewest in two years and down from 180,000 a month earlier, according to the median forecast of 78 economists in a Bloomberg survey.

``We remain bearish on the dollar in the near term,'' said Daragh Maher, senior currency strategist in London at Calyon. ``We are cautious about the U.S. economic outlook.''

German Jobless Report

Germany's Federal Labor Agency will probably report today that unemployment dropped to 6.8 percent in March from 6.9 percent a month earlier, which was the lowest since August 2001, according to the median forecast of seven economists surveyed.

The dollar strengthened yesterday after the Institute for Supply Management's manufacturing index rose last month to 54.7, the highest since May 2006, from 50.9 in March. Readings above 50 indicate expansion.

``It's short-term relief for the dollar,'' said Christian Dupont, a senior currency trader in Montreal at Societe Generale SA. ``The market speculated about a weak report, so people have to cover some of their short dollar positions. The report doesn't change the picture of a weakening dollar.'' A short is a bet on a currency's decline.

Yields on interest-rate futures rose yesterday following the ISM report, indicating traders pared bets the Fed will lower borrowing costs this year.

Eurodollar Futures

The yield on Eurodollar futures for December increased to 5.065 percent from 4.995 percent before the ISM manufacturing report. The contracts' value at settlement is based on the interest rate on three-month bank deposits, which is influenced by the federal funds rate target.

The Fed has kept its target rate for overnight lending between banks at 5.25 percent since August, while the European Central Bank has boosted its rate seven times since November 2004 to 3.75 percent last month. The Bank of Japan's rate is 0.5 percent, the lowest among major economies.

The yen rebounded from record low against the euro yesterday, erasing earlier losses, after Japan's Finance Minister Koji Omi said exchange rates should be determined by markets and he's optimistic about the outlook for global economic growth.

The Japanese currency traded at 163.06 yen per euro. It rebounded yesterday from an intraday low of 163.30, near the all- time low of 163.32 set a day earlier.

To contact the reporter on this story: Min Zeng in New York at mzeng2@bloomberg.net.

Last Updated: May 1, 2007 17:09 EDT