*

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

*

US doubles steel duties on Wednesday, to receive 'best

offers'

from trade partners

*

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

tariff

truce

(Updates to U.S. morning)

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 data highlighted continued easing in the labor market

and data showed 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.

The data prompted U.S. President Donald Trump to reiterate

his calls for Federal Reserve Chair Jerome Powell to lower

interest rates.

"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 dollar was 0.6% lower against the Japanese yen at

143.165 yen. The euro rose 0.5% to $1.1424, ahead of the

European Central Bank's decision on interest rates expected on

Thursday.

"We think that the Fed will lean toward a more 'dovish'

message on June 17 than it did on May 7, and the prospect for a

rate cut in 2025 has strengthened a bit," Thierry Wizman, Global

FX & Rates Strategist at Macquarie, said in a note, following

the ADP data.

Investors are now looking to Friday's highly anticipated

monthly payrolls figures to gauge the state of the labor market.

Focus also remains on trade negotiations.

The Trump administration has given a deadline of Wednesday

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 on Wednesday posted on his social media platform that

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

The Swiss franc rose 0.5% to 0.820 francs to the

dollar, while the dollar index, which measures the

currency against six others, was flat 0.3% lower on the day at

98.847, not far from its late April low of 97.923.

The Hong Kong dollar was at 7.8469 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 0.3% higher at $1.35585. The UK and

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

given Britain has a trade deal in place.

In the meantime, traders were also keyed in on developments

in Japanese markets after sources told Reuters the Bank of Japan

is considering slowing down the pace of tapering in its bond

purchases from next fiscal year onward.

Elsewhere, the Canadian dollar was about 0.3%

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.

Bitcoin, the world's largest cryptocurrency by market

capitalisation, was 1% lower on the day at $104,839.