*

US private payrolls post smallest gain in over two years

in May

*

US service sector unexpectedly contracts in May; inflation

heats

up

*

Trump says Fed's Powell must lower interest rate

*

Trump to speak this week with China's Xi amid clash over

tariff

truce

(Updates to US afternoon)

By Saqib Iqbal Ahmed

NEW YORK, June 4 (Reuters) - The dollar fell across the

board on Wednesday after weaker-than-expected U.S. private

payrolls numbers highlighted continued easing in the labor

market and data showed the U.S. services sector contracted for

the first time in about a year in May.

U.S. private payrolls rose by only 37,000 jobs in May, far

less than expected, after a downwardly revised 60,000 rise in

April, the ADP National Employment Report showed on Wednesday.

Economists polled by Reuters had forecast private employment

increasing 110,000 following a previously reported gain of

62,000 in April.

U.S. President Donald Trump reiterated his calls for Federal

Reserve Chair Jerome Powell to lower interest rates following

the data.

"It's a major gap between expectation and actual," Juan

Perez, director of trading at Monex USA in Washington.

"This idea that labor has not been hurt and that the

post-pandemic recovery was good enough that people are enjoying

good opportunities ... that narrative is changing and that's

absolutely very negative for the U.S. dollar," he said.

Separately, data showed the U.S. services sector contracted

for the first time in nearly a year in May while businesses paid

higher prices for inputs, a reminder that the economy remained

in danger of a period of very slow growth and high inflation.

"The Fed will take notice of slower job growth, but this

won't be enough to convince them to cut interest rates near

term," Bill Adams, chief economist for Comerica Bank, said in a

note.

The dollar fell 0.7% to 142.89 Japanese yen. The euro rose

0.4% to $1.1414, ahead of the European Central Bank's decision

on interest rates expected on Thursday.

Investors are awaiting Friday's monthly payrolls figures

to gauge the state of the labor market, and remain focused on

trade negotiations.

The Trump administration has given a Wednesday deadline for

countries to submit their best offers on trade, the same day

duties on imported steel and aluminium doubled.

Trump is also tipped by the White House to have a call this

week with Chinese President Xi Jinping, after the two sides

accused each other of violating the terms of an agreement last

month to roll back some tariffs.

Trump posted on his social media platform on Wednesday that

Xi was "tough" and "hard to make a deal with."

The dollar index, which measures the greenback

against six major currencies, was 0.3% lower on the day at

98.838, not far from its late-April low of 97.923.

The Hong Kong dollar was at 7.847 per U.S. dollar,

the closest it has been to 7.85 - the weak end of its trading

band against the U.S. dollar - since August 2023, according to

LSEG data.

Sterling was 0.2% higher at $1.35515. The UK and

its metal exports are exempt from the increased U.S. duties,

given Britain has a trade deal in place.

Traders were also monitoring developments in Japanese

markets after sources told Reuters the Bank of Japan is

considering slowing down the tapering in its bond purchases from

next fiscal year onward.

The Canadian dollar was about 0.4% higher versus

its U.S. peer after the Bank of Canada on Wednesday held its key

benchmark rate at 2.75%, citing the need to probe the effects of

U.S. trade policy.

Canada is prepared to strike back if talks with Washington

to remove Trump's tariffs did not succeed, Prime Minister Mark

Carney said on Wednesday.

Bitcoin, the world's largest cryptocurrency by market

capitalization, was 0.7% lower at $105,064.