* U.S. economy creates 138,000 jobs in May, jobless rate
* Dollar sells off across the board
* Rate futures show 87 pct chance of June hike after jobs
(Recasts throughout, changes byline, dateline; previous LONDON)
By Gertrude Chavez-Dreyfuss
NEW YORK, June 2 The dollar fell to seven-month
lows on Friday after data showed the U.S. economy created fewer
jobs than expected last month, which could derail a possible
interest rate hike by the Federal Reserve in the second half of
The greenback fell to seven-month troughs against euro and
Swiss franc, while sliding from a one-week high versus the yen.
Data showed that U.S. nonfarm payrolls increased just
138,000 last month as the manufacturing, government and retail
sectors lost jobs, while the consensus forecast was for 185,000
March and April data was revised to show 66,000 fewer jobs
created than previously reported. May's job gains marked a sharp
deceleration from the 181,000 monthly average over the past 12
The unemployment rate, however, fell to a 16-year low of 4.3
Despite the big miss in payrolls, analysts said this would
not necessarily derail the Federal Reserve from raising interest
rates this month.
"A hike in June is still on the table but the news flow will
have to improve for the Fed to keep tightening in the second
part of the year," said Thomas Julien, U.S. economist, at
Natixis North America in New York.
Traders now see a roughly 87 percent chance of a Fed rate
increase on June 14, down slightly from 89 percent before the
They continue to see slightly less than an even chance for
one more rate hike before the end of the year, based on the
price of fed funds futures contracts traded at CME Group Inc's
Chicago Board of Trade.
In early New York trading, the dollar index fell to a
seven-month low and was last down 0.3 percent at 96.873
The euro was 0.5 percent higher against the dollar to
$1.1265, after earlier rising to a seven-month peak of
Against the yen, the dollar fell from one-week highs
and last changed hands at 110.74 yen, down 0.5 percent.
The dollar also slid to seven-month troughs versus the Swiss
franc, trading last at 0.9664 franc, down 0.5 percent.
(Reporting by Gertrude Chavez-Dreyfuss; Editing by W Simon)