Early trade in New York: Dollar slides to two-week low

The dollar fell to two-week lows on Monday after data showed the US manufacturing sector contracted for a fourth straight month in November and construction spending fell unexpectedly, stoking fears the world's largest economy could go into recession.

The greenback also dropped from six-month highs against the yen and slid to a two-week trough versus the euro after the US manufacturing report.

The Institute for Supply Management's (ISM) index of national factory activity fell to 48.1 in November from 48.3 in October, down for a fourth month. The reading was below expectations of 49.2 from a Reuters poll of 57 economists.

A separate report on Monday showed US construction spending in October dropped as well, falling 0.8% as investment in private projects tumbled to the lowest level in three years.

"What this means for the dollar is that we could potentially see another rate cut from the Federal Reserve next year," said Karl Schamotta, chief market strategist at Cambridge Global Payments in Toronto.

The Fed has cut interest rates three times this year and at its last monetary policy meeting it signaled it would be data-dependent going forward.

In late morning trading, the dollar index was last down 0.3% at 97.942 after dropping to 97.917, a two-week low.

The drop in the dollar index pushed the euro to a two-week high. It was last up 0.5% at $1.1070.

The dollar also fell 0.2% against the yen, to 109.12 yen, after hitting 109.72 yen, the highest since May.

Earlier in the session the greenback gained against the yen after an unexpected rebound in Chinese manufacturing activity lifted hopes of a brighter outlook for world growth.

In other trading, sterling was down 0.1% at $1.2920 as polls pointed to a narrowing lead for the governing Conservative Party before the UK's Dec. 12 election.

"There are increasing parallels with the way polls played out in 2017 with what we're seeing now, so that could cap the upside for sterling," said Jeremy Stretch, head of G10 FX strategy at CIBC capital markets, referring to the last UK election two years ago.