The dollar was little changed versus the euro after the U.S. Institute for Supply Management's factory index rose to 50.2 last month, from 49.6 in May. A reading of 50 is the dividing line between expansion and contraction. The median forecast of economists surveyed was for a drop to 48.5. The institute's employment index decreased to 43.7, from 45.5 in May.
``It does cause the market to be a little optimistic, but I would say such optimism is unwarranted,'' said Todd Elmer, currency strategist at Citigroup Global Markets in New York. ``The U.S. economy will remain weak for quite some time to come. The housing market has failed to stabilize. The soft employment component in the ISM number confirmed the continued deterioration in the labor market.''
The U.S. currency fell earlier as crude oil rose as much as 2.4 percent to $143.33 a barrel. The euro-dollar exchange rate and oil have moved in the same direction 90 percent of time during the past year, according to calculations based on the correlation of their value changes.
Former U.S. Treasury Secretary Robert Rubin said in an interview in Rome that economic difficulties will last ``quite some time.'' Billionaire investor Eli Broad, 75, the founder of Los Angeles-based homebuilder KB Home, said in an interview yesterday that the slowdown in the U.S. economy is ``worse than any recession we've had since World War II.''
Futures on the Chicago Board of Trade show a 20 percent chance the Fed will raise its 2 percent target rate for overnight lending between banks by a quarter-percentage point on Aug. 5, compared with 38 percent odds a week ago.
Economists predict the European Central Bank will increase its 4 percent main refinancing rate by a quarter-percentage point on July 3, the same day a U.S. government report will probably show nonfarm payrolls shrank by 60,000 workers last month, according to separate surveys

Japan Stocks Fall on Stronger Yen; Oil, Mining Companies Jump
Japan's Nikkei 225 Stock Average fell for a ninth day, its longest losing streak in almost four years, as concern higher materials costs will erode earnings overshadowed gains by commodities companies.
Tokyo Tatemono Co. sent a gauge of developers to a three- month low after cutting its profit forecast on rising costs and slumping demand. Mitsubishi Corp., a trading company which earns half its profit from commodities, and Tokyo Electric Power Co. gained as slumping business confidence boosted demand for companies that can withstand a slowing economy.
The Tankan index slid to for a third quarter to 5 points in June from 11 in March, the Bank of Japan said today, whereas economists had estimated the gauge would fall to 3.
Seventeen of 33 industry groups on the Topix declined. Trading volume on the bourse was the thinnest since June 24.
Large companies expect profits to drop 7 percent in the year to March 31, compared with a 0.3 percent increase predicted three months ago, the Tankan report showed. A separate report from the Labor Ministry today showed wages grew at the slowest pace in five months in May.
Tokyo Tatemono plummeted 14 percent to 588 yen, its steepest drop since May 2004. The company slashed its full-year profit target by more than a third, saying increasing materials costs had boosted condominium prices and sapped demand.
Mitsubishi Estate Co., Japan's second-largest developer, tumbled 2.1 percent to 2,380 yen, while Nomura Real Estate Holdings Inc. dropped 9.8 percent to 2,020 yen, the second- biggest loser on the MSCI World Index after Tokyo Tatemono.
Prices for land in central Tokyo increased 18.4 percent in 2007, compared with an 18.7 percent gain a year earlier, the National Tax Agency said in a report released today.
Mitsubishi, Japan's largest trading company, climbed 3.4 percent to 3,620 yen, while rival Mitsui & Co. gained by the same degree to 2,425 yen. AOC Holdings Inc., which has stakes in South China Sea and North Sea oil fields, soared 5.8 percent to 1,153 yen and Nippon Mining Holdings Inc., Japan's largest copper producer, added 2.4 percent to 681 yen.
Tokyo Electric, Asia's biggest utility, extended a gain after saying it may raise rates to cope with higher fuel prices. The stock added 3.1 percent to 2,815 yen, bringing a five-day gain to 13 percent. Hokkaido Electric Power Co. jumped 3.7 percent to 2,240 yen, and Okinawa Electric Power Co added 3.4 percent to 5,430 yen.
The average dividend yield among 17 utilities on the Topix was 2.2 percent in the past 12 months, compared with 1.7 percent for the whole index, according to data compiled by Bloomberg. The Topix Electric Power & Gas Index has risen 7.6 percent since June 26, the sharpest three-day gain since December 1993.
Tsumura & Co., which produces herbal medicine, climbed 3.3 percent to 2,825 yen, the highest in 16 months. eAccess Ltd., owner of Japan's smallest mobile-phone carrier, surged 5.7 percent to 57,700 yen. Trading houses, utilities, drugmakers and telecommunications companies were among the biggest winners among groups on the Topix.
JFE Holdings Inc., Japan's second-largest steelmaker, tumbled 3 percent to 5,190 yen, while larger rival Nippon Steel Corp. slumped 2.4 percent to 561 yen. Mitsubishi Steel Manufacturing Co. sank 3.7 percent to 471 yen.
Asian steelmakers agreed to price increases of as much as 97 percent with Rio Tinto Group, the world's second-largest iron ore exporter said today. BHP Billiton Ltd., the third largest, said it hasn't concluded price talks.
A gauge tracking steelmakers was the second-biggest loser among groups on the Topix after real estate companies.

European Stocks Decline; Porsche, Ryanair and Royal Bank Drop
Porsche SE, the maker of the 911 sports car, and Ryanair Holdings Plc retreated as oil traded above $142 a barrel. Royal Bank of Scotland Group Plc declined after U.K. housing prices sank the most since the last recession and manufacturing contracted. UBS AG dropped as the U.S. sought to force the bank to reveal customers' names.
Stocks extended declines and oil prices rose after ABC News said Israel is increasingly likely to attack Iran's nuclear facilities this year. ABC cited an unidentified Pentagon official.
Iran's government dismissed as propaganda the ABC report, while Israeli government officials declined to comment. Pentagon spokesmen Geoff Morrell and Bryan Whitman didn't immediately respond to requests for comment on the ABC report.
Financial stocks from HBOS Plc, the U.K.'s biggest mortgage lender, to Lehman Brothers Holdings Inc. of the U.S. and Australia's Babcock & Brown Ltd. have led declines that erased more than $9.2 trillion from equity markets worldwide this year. Credit-related losses of $400 billion, record oil prices and accelerating inflation stoked concern policy makers will be forced to raise borrowing costs as the economy cools.
National benchmark indexes fell in all of the 18 western European markets. The U.K.'s FTSE 100 sank 2.6 percent, and France's CAC 40 lost 2.1 percent. Germany's DAX slid 1.6 percent.
Porsche declined 6.2 percent to 91.87 euros, and Ryanair fell 2.1 percent to 2.74 euros.
Crude oil for August delivery rose as much as $3.33, or 2.4 percent, to $143.33 in New York.
Royal Bank, the U.K.'s second-biggest bank, fell 5.1 percent to 204 pence. ING Groep NV, the largest Dutch financial services company, slipped 2.6 percent to 19.73 euros.
U.K. house prices in June had their biggest decline since the end of the last recession in 1992, while manufacturing contracted the most since 2001. In Asia, Japanese business confidence sank to a four-year low, South Korea's inflation rose and Chinese manufacturing growth slowed.
JPMorgan Chase & Co. said yesterday prices for some mortgage securities may sink further.
Deutsche Bank AG dropped 4.4 percent to 52.44 euros on speculation Germany's biggest bank may lower its earnings outlook.
Deutsche Bank spokesman Ronald Weichert declined to comment.
UBS fell 5.3 percent to 20.3 francs after the U.S. took legal action that would force the Swiss bank to reveal the names of American customers with secret accounts.
Federal prosecutors took the unprecedented step yesterday of asking a Miami federal judge to let the IRS issue a summons to UBS for the information. Earlier last month, former UBS private banker Bradley Birkenfeld pleaded guilty to conspiracy and said the bank helped wealthy U.S. citizens conceal $20 billion in assets and evade income tax. Safran SA sank 9.3 percent to 11.18 euros. Cheuvreux cut its recommendation on shares of Europe's second-largest defense- electronics manufacturer to ``underperform'' from ``outperform.''
Deutsche Telekom AG rose 1.8 percent to 10.59 euros. Europe's biggest phone company was raised to ``overweight'' from ``neutral'' at JPMorgan.
Deutsche Telekom is ``a preferred play'' in what is expected to be a stronger second half of the year for the industry, London-based analyst Hannes Wittig wrote in note to clients today. The brokerage has a price estimate of 13.50 euros on the shares.