The U.S currency was on the defensive Thursday, retaining most of the losses sustained the previous day when upbeat data helped lure investors away from safe-haven currencies and assets.

Figures released yesterday showed U.S. pending home sales rose unexpectedly in July and new claims for unemployment insurance fell for a second straight week, which, together with upbeat manufacturing data on Wednesday, eased the gloom over the U.S economy. That lifted stocks, commodities and higher-yielding currencies. However, investors hesitated to take fresh positions ahead of Friday's monthly U.S. jobs report, analyst said.

The euro headed for a 2nd consecutive weekly gain versus the U.S dollar before a European report that economists said will show retail sales rose for a 3rd month, spurring demand for the region's assets. Retail sales in the euro area increased 0.2% in July, matching the previous month's gain, according to economists' estimations before today's report.

Against the British pound the 16-nation currency traded near a 3-week high on speculation European Central Bank President Jean-Claude Trichet will tomorrow reiterate his comments that the region's recovery is on track.

The Japanese yen rose yesterday, extending its gains vs. the dollar after U.S. reports showed an unexpected increase in pending home sales, a decline in initial jobless claims and improved retail sales. The pullback in the dollar came even after a Japanese political candidate reiterated his call for direct currency-market intervention to stem the recently strong yen. Japan's currency stood at 84.35 yen per dollar, up slightly on the day but not far from the 15-year low of 83.58 yen hit late last month.

A sharp drop in dollar/yen, such as 1 to 2% or more in a single day towards the 80 yen level and below, is seen as the most likely scenario that would prompt Japan to intervene and start to buy dollars. Thus many traders expect the market to test the willingness of Japan to intervene, especially if U.S. payrolls data comes in weaker than expected.