(Updated at 14:50 EST)

By Karen Brettell

NEW YORK, March 1 (Reuters) - The dollar fell againstthe euro on Friday on weaker than expected U.S. economic databut gained against the Japanese yen after Bank of Japan (BOJ)governor Kazuo Ueda said it was too soon to declare victory oninflation.

In cryptocurrencies, bitcoin held just below a more thantwo-year high reached on Wednesday.

U.S. manufacturing slumped further in February, with ameasure of factory employment dropping to a seven-month low amiddeclining new orders. Construction spending, which had beenexpected to increase, also fell in January.

Economists at Goldman Sachs cut their gross domestic product(GDP) estimate for the first quarter by 0.2 percentage points to2.2% after the data.

The dollar has been largely rangebound with traders focusingclosely on economic data for any new clues on when the U.S.Federal Reserve is likely to begin cutting interest rates.

Marc Chandler, chief market strategist at Bannockburn GlobalForex in New York, noted that "the U.S. is the key side of it,"in terms of driving currency moves. The greenback had lookedlike it was going to break higher in the past few days, butfailed after Friday's turn lower, he added.

The dollar was also pulled down in line with shorter-datedTreasury yields on Friday after Fed Governor Chris Waller saidhe would like the U.S. central bank to address a reset of thebalance sheet towards shorter-term Treasury bills that wouldbetter match the short-term policy rate that the Fed controls asits key monetary policy tool.

The next major U.S. economic release will be February'semployment report due next Friday.

The dollar index fell 0.23% to 103.87. The eurogained 0.31% to $1.0837.

Data on Friday showed that euro zone inflation dipped lastmonth but underlying price growth remained stubbornly high,adding to the case for the European Central Bank to holdinterest rates at record highs a bit longer before starting toease policy towards mid-year.

The euro zone's currency has traded within a range of $1.07to $1.11 since November as investors struggle to work out whenthe ECB and the Fed will start cutting rates.

"We are seeking out fresh news," said Jane Foley, head of FXstrategy at Rabobank, "whether that's going to come from the ECB(European Central Bank) and a change in expectations, or furtheralteration of the market's view about the ability of the Fed tocut even in June."

JAPANESE INFLATION IN FOCUS

The dollar rose against the yen after BOJ's Ueda said it wastoo early to conclude that inflation was close to sustainablymeeting the central bank's 2% inflation target and stressed theneed to scrutinize more data on the wage outlook.

That reversed a move from Thursday when BOJ board memberHajime Takata said that the central bank must consideroverhauling its ultra-loose monetary policy, including an exitfrom negative interest rates and bond yield control.

Inflation expectations and the path of BOJ policy willlikely depend on negotiations between large firms and unionsover wage increases.

"If we're right in expecting wage negotiations are going tolead to more signals that inflation is becoming a little bitmore persistent in Japan, then we expect BOJ to exit negativeinterest rate policy," said Bipan Rai, North American head of FXstrategy at CIBC Capital in Toronto.

However, "I feel like it is priced in already", Rai added."Beyond there we're really looking at what sort of tweaking theydo to the yield curve control program."

Big firms will settle negotiations on next year's pay withunions on March 13, ahead of the BOJ policy meeting on March18-19.

The dollar was last up 0.09% at 150.10 yen.

Sterling rose 0.26% to $1.2655.

Bank of England (BoE) chief economist Huw Pill said onFriday he thought the time for a first interest rate cut by thecentral bank since the coronavirus pandemic remained "some wayoff."

Bitcoin was last up 1.4% at $62,320, after reaching$63,933 on Wednesday, which was the highest since Nov. 2021.