NEW YORK, Aug 1 (Reuters) - The euro briefly extended gains against the dollar on Wednesday after data showed the U.S. manufacturing sector shrank for the second month in a row in July and employment dropped to a 2-1/2-year low, bolstering the case for further Fed action to stoke economic growth. .
The euro edged higher against the dollar to $1.2323 from $1.2312 before the report but eased back as investors waited for a monetary policy decision from the U.S. central bank later in the day. It was last at $1.2309.
The dollar was last at 78.19 yen, unchanged from where it was prior to the release of the data.
"The ISM was marginally weaker than expected and generally consistent with the U.S. economy's broad weakness that the Federal Reserve has alluded to in many of its speeches," said Ravi Bharadwaj, market analyst at Western Union Business Solutions in Washington. "It certainly adds further cause for the Fed to engage in more quantitative easing."