FOREX-Dollar gains as U.S. stocks drop; euro, sterling fall

(Updates to early New York trading; changes dateline, previous LONDON)

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Dollar gains

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Sterling falls after rising for six sessions

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NZ move dims hopes of slowdown in rate rises globally

By Caroline Valetkevitch

NEW YORK, Oct 5 (Reuters) - The dollar rebounded across the board on Wednesday as recent risk-on sentiment reversed and U.S. stocks dropped, with the euro and sterling down more than 1% each.

The euro was down 1.4% at $0.9852 after rising 1.7% on Tuesday.

Sterling was down 1.8% to $1.1268, after rising for six straight sessions. Its fall extended slightly as UK Prime Minister Liz Truss pledged to bring down debt as a share of national income, just over a week after the government's plans to slash taxes and ramp up borrowing spooked markets.

Adding to the pressure on the pound, data showed Britain's private-sector economy last month suffered the sharpest contraction in activity since a COVID-19 lockdown early last year.

Recent gains for most major currencies against the dollar have been underpinned by hope among investors and traders that the U.S. Federal Reserve will raise interest rates by less than previously expected.

"You had a general risk-on where the euro, sterling really traded well and the stock market gained. I kind of think this is just (investors) exploring a trading range," said Marc Chandler, chief market strategist at Bannockburn Global Forex in New York.

"The bottom line is the bounce in risk assets is not taking place because of a change in Fed views."

From here, investors are likely to focus on Friday's U.S. jobs data, he said, which will be watched for clues on the possible trajectory of the Fed's monetary policy.

U.S. Fed Governor Philip Jefferson reiterated overnight that inflation was the top target for policymakers and that growth would suffer in efforts to bring it down.

San Francisco Fed President Mary Daly took a softer line and said the impact of the dollar, which is up sharply this year, on other currencies and economies was a concern.

A fifth consecutive 50-basis-point rate hike from the Reserve Bank of New Zealand (RBNZ) on Wednesday reminded investors that inflation remains the main focus of central banks.

The New Zealand dollar was last down 1% at $0.5676, having jumped as much as 1.3% earlier in the session. The Aussie dollar was also 1% lower at $0.6436.

In other currencies, the dollar was up 0.4% against the Japanese yen.

(Additional reporting by Harry Robertson in London. Additional reporting by Tom Westbrook in Sydney; Editing by Bernadette Baum and Jonathan Oatis)