By Richard Leong
NEW YORK (Reuters) - The dollar was little changed against a basket of currencies on Wednesday as encouraging data on the U.S. services sector offset a weaker-than-expected report on private-sector job growth, while the euro was broadly higher in step with a rise in higher euro zone bond yields.
U.S. services industries grew at their fastest pace in 11 months in September, reinforcing the view of a steady economic expansion which would allow the Federal Reserve to raise interest rates later this year, analysts said.
Wednesday's upbeat snapshot of the services sector from the Institute for Supply Management followed perceived hawkish remarks from regional Fed presidents Loretta Mester and Jeffrey Lacker earlier this week.
"This is adding to the view that December is the most likely rate-hike scenario for the Fed," said Omer Esiner, chief market strategist at Commonwealth Foreign Exchange Inc. in Washington.
The latest ISM services data offset a weaker-than-expected jobs reading from ADP. The payroll processor said on Wednesday U.S. companies added 154,000 workers in September, the fewest since April.
The greenback was locked in a tight trading range as traders remained cautious ahead of the government's payrolls report due on Friday at 8:30 a.m. (1230 GMT).
The dollar index was little changed at 96.101 <.DXY> after rising to 96.442 on Tuesday, its highest since Aug. 9.
The greenback hovered near a four-week peak against the yen. It was last up 0.7 percent at 103.56 yen. <JPY=>
The euro soared to a five-year high versus the struggling pound and reached a three-week high against the yen in early trading.
Most euro zone bond yields rose to two-week highs, a day after a Bloomberg article cited sources as saying the European Central Bank would probably wind down its bond buying gradually before ending quantitative easing. [GVD/EUR]
An ECB media officer said in a tweet later on Tuesday that the ECB had not discussed reducing the pace of its monthly bond buying.
Still, regional bond yields rose with the two-year German Schatz yields <DE2YT=RR> at -0.680 percent after hitting its least negative level in 1-1/2 weeks.
The euro rose to 88.43 British pence <EURGBP=D4>, a level last seen five years ago before retreating to 87.93 pence in late U.S. trading.
The euro zone common currency rose 0.8 percent to 116.08 yen after touching its highest in three weeks at 116.14 yen, while it was little changed versus the dollar at $1.1212. <EURJPY=> <EUR=>
"The headlines that the ECB is considering tapering has led to some buying in the euro, especially against the yen," said Yujiro Goto, currency strategist at Nomura in London.
Sterling rose 0.2 percent to $1.2753 after falling earlier Wednesday below $1.27 <GBP=D4> for the first time in over 31 years on worries about the potential impact on Britain as its government seeks to exit the European Union.
(Additional reporting by Anirban Nag in London and Shinichi Saoshiro in Tokyo; Editing by Catherine Evans and James Dalgleish)