(Updated at 10:25 a.m. EDT/ 1425 GMT)

By Chuck Mikolajczak

NEW YORK, May 9 (Reuters) - The dollar weakened against

most currencies on Monday after economic data showed more signs

of softening in the U.S. labor market, while the pound rebounded

from earlier lows after the Bank of England opened the door for

an interest rate cut.

Weekly initial claims for state

unemployment benefits increased

22,000 to a seasonally adjusted 231,000, the highest level

since the end of last August and above the 215,000 expected by

economists in a Reuters poll.

The data followed last week's weaker-than-anticipated

U.S. payrolls report and other data that showed job openings

fell to a three-year low in March.

Market participants have looked towards a softening

labor market as a sign that consumers will begin to slow

spending and in turn help cool inflation. Data next week will

include readings on consumer prices (CPI), producer prices (PPI)

and retail sales.

"We did have a knee-jerk reaction in yields and the dollar

lower this morning after the jobless claims number came in above

expectations," said Karl Schamotta, chief market strategist at

Corpay in Toronto.

Schamotta said there were some seasonal distortions in

the claims report that may have led to the higher reading, but

he added that recent economic data "kind of suggests that we're

seeing a deceleration in the world's largest economy, and if we

do see a sequential decline in U.S. consumer/producer price

indices next week as well as the retail sales number, then that

could prick that U.S. exceptionalism trade that's been

dominating markets for quite a long time."

The dollar index,which measures the greenback

against a basket of currencies, fell 0.21% at 105.29, with the

euro up 0.27% at $1.0774.

Sterling strengthened 0.1% to $1.2509 in the wake of

the U.S. data. The pound had dropped to a low of $1.2446, its

weakest level since April 24, after the Bank of England (BoE)

paved the way for an interest rate cut.

The BoE's Monetary Policy Committee

had voted

7-2 to keep the central bank's key policy rate at a 16-year

high of 5.25%, with Deputy Governor Dave Ramsden joining Swati

Dhingra in voting for a cut to 5%. BoE Governor Andrew Bailey

said it was possible the central bank would need to cut rates by

more than investors expect.

Against the Japanese yen the dollar edged 0.02%

lower at 155.45 while hawkish opinions from Bank of Japan

members helped slow the yen's fall. The dollar has been slowly

recovering against the Japanese currency after it fell 3.4% last

week, its biggest weekly percentage drop since early December

2022.

The yen had earlier strengthened to 155.15 per dollar, after

the BOJ's summary of opinions showed board members were

overwhelmingly hawkish at their April policy meeting, with many

citing the need for steady interest rate hikes.

BOJ Governor Kazuo Ueda said the central bank will

scrutinize the yen's recent declines in guiding monetary policy.

Market participants suspect Tokyo spent some $60 billion

last week to stall the yen's slide after it hit its weakest

level in 34-years against the dollar around 160 yen.

In a note on Thursday, Deutsche Bank's head of FX research,

George Saravelos, reiterated that "as long as the BOJ sees no

urgency to rapidly normalize policy, the fundamental backdrop

for the JPY (yen) will not change."