FX OUTLOOK-Dollar likely rangebound amid summer slumber

By Steven C. Johnson

NEW YORK, July 2 (Reuters) - Uncertainty about the strength of the world economy and concern about the U.S. fiscal deficit will probably confine the dollar to a narrow trading range next week as markets ease into the typically quiet summer doldrums.

Until now, the dollar has held up fairly well despite a swelling deficit, an onslaught of government debt issuance and repeated calls to end its status as global reserve currency.

That's partly because recent economic data has tempered the optimism that had prompted investors to pull out of safe-haven U.S. assets in favor of commodities, stocks and higher-yielding currencies. Data on Friday showed U.S. employers cut 467,000 jobs in June, far more than economists were expecting after May's surprisingly low tally of 322,000 job losses.

"If you were banking on the U.S. driving a vigorous recovery, think again," said Alan Ruskin, chief international strategist at RBS Securities in Greenwich, Connecticut.

The dollar's gains on Friday remained modest, however, with the euro holding firm around $1.40, despite a looming three-day U.S. holiday weekend that would typically prompt investors to reduce exposure to risk.

Financial markets in Europe and Asia are open on Friday.

Also, other economic indicators, including manufacturing gauges from the United States, China and Europe, have shown slow but steady improvement.

"The market is still favoring foreign currencies over the dollar," said Meg Browne, senior currency strategist at Brown Brothers Harriman in New York. "Sentiment still says to sell the dollar whenever possible."