* U.S. ISM softer than expected, weighs on dollar * Yen gains broadly but downtrend intact * Thin trade allows yen to firm despite BoJ easing expectations By Gertrude Chavez-Dreyfuss NEW YORK, April 1 The dollar fell across the board on Monday, sliding to a nearly four-week low against the yen, as softer-than-expected U.S. manufacturing data for March interrupted a run of generally upbeat economic reports. The yen, meanwhile, firmed on safe-haven flows following unexpectedly weak Chinese factory activity and renewed uncertainty in the Korean peninsula. Volume, however, was thin, with many markets still closed for Easter holidays, and the low liquidity led to exaggerated currency moves. A weaker-than-forecast U.S. manufacturing report kicked off selling in the dollar. The Institute for Supply Management said its index of national factory activity fell to 51.3 from 54.2 the month before. The reading was shy of expectations of 54.2 according to a Reuters poll of economists. "There are some clear signs that recent growth momentum in the manufacturing sector will not be easily built," said Alan Ruskin, head of G10 FX strategy at Deutsche Bank in New York. "The data will tend to undercut some of the enthusiasm in the long dollar exposure." The greenback has been in a broad rally this year as evidence mounted that the U.S. economy is on a stable path to recovery. The dollar index has gained 3.6 percent so far in 2013. Ruskin pointed out that it's not all "gloom and doom" for the U.S. manufacturing report, with both the employment and new orders components posting new highs. In midday trading, the dollar index, which measures the greenback's value against six major currencies, was down 1.6 percent to 82.690. It fell as low as 82.647, a one-week trough. The mood overall was cautious ahead of the European Central Bank's monetary policy review on Thursday and the monthly U.S. payroll data out on Friday. The dollar fell nearly 1.0 percent to 93.28 yen, falling as low as 93.16, the lowest since March 6. The euro also slid 0.7 percent to 119.98 yen. "We're seeing safe-haven flows from the Australian and New Zealand dollars into the yen because of the weak Chinese data," said Ravi Bharadwaj, market analyst at Western Union Business Solutions in Washington. China's official Purchasing Managers Index reached 50.9 in March, just shy of market expectations of a jump to 52 from February's 50.1. KOREAN TENSIONS Tensions in the Korean Peninsula also supported the yen, analysts said. South Korea on Monday said it will strike back quickly if the North stages any attack on its territory amid shrill rhetoric from Pyongyang and the U.S. deployment of radar-evading fighter planes. Earlier, North Korea said the region is on the brink of a nuclear war in the wake of United Nations sanctions imposed for its February nuclear test and a series of joint U.S. and South Korean military drills that have included a rare U.S. show of aerial power. Investors had earlier brushed off a disappointingly narrow improvement in Japanese business sentiment over the last quarter shown by the Bank of Japan's tankan survey, as the focus is more on the central bank's policy review later in the week. The BoJ is widely expected to scale up its bond buying and to extend the maturities of the bonds it purchases under new Governor Haruhiko Kuroda. Bets on a radical shift in the BoJ's policy has ramped the dollar up 20.9 percent against the yen in the last two quarters, pushing it to a 3-1/2-year high of 96.71 yen last month. The euro, meanwhile, was up 0.3 percent against the dollar at $1.2861, rallying from a low of $1.2770. Europe's common currency was still down 2.5 percent so far this year and has slid steadily since February, when it hit a 14-month high of $1.3711. At the weekend, the Cypriot central bank confirmed that major depositors in Cyprus's biggest bank would lose around 60 percent of savings over 100,000 euros, well above the initially touted cut of 30 to 40 percent. The euro has major support around $1.2680, a 61.8 percent retracement of its July-February rally. But a break there could open the way for a test of last year's low near $1.20. Borrowing costs in Slovenia, seen by economists as one of the next potential candidates for the next euro zone bailout, jumped over 100 basis points in the wake of the Cyprus bailout, while Italian borrowing costs reached their highest since November at a five-year bond auction last week. Appetite for Italian debt has been hurt by the deadlock in the country's politics since inconclusive elections a month ago, reinforcing the euro zone common currency's weakness.
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