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By Toni Vorobyova
LONDON, May 1 (Reuters) - The dollar hit a one month high versus the euro on Thursday as market focus shifted from the Federal Reserve not signalling a definitive end to rate cuts, to worries about the health of the euro zone economy.
The Fed cut rates by 25 basis points to 2 percent on Wednesday, as most expected, and signalled that its next move would depend on developments in financial markets and the economy.
The statement disappointed some investors who had expected a clear sign that the Fed was done with monetary easing after dishing out 325 basis points of cuts over eight months.
But the dollar sell-off reversed in early European trade with traders saying moves were exaggerated by thin liquidity due to national holidays across much of the continent.
"The 25 basis points (Fed cut) was largely priced in, but not fully, so the knee-jerk reaction to sell dollars makes sense...The market was probably expecting a bit too much hawkishness, and it has a small disappointment," said John Hardy, FX strategist at Saxo Bank.
"But I think it's all neutralised and now we are back to square one, and looking at the relative performance elsewhere...and we've seen some disappointment out of Europe."
A run of weak sentiment data from the euro zone and its member states have fanned expectations that the European Central Bank may soon tone down its hawkish rhetoric and set off on a gradual path towards signalling eventual monetary easing.
The euro fell to a one-month low of $1.5497 <EUR=>, more than five cents below last week's record highs above $1.60.
It was down half a percent at 161.41 yen <EURJPY=>, while the dollar was steady at 104.00 yen <JPY=> by 1034 GMT.
However analysts said that, given the Fed's focus on upcoming data, the dollar's rally may be cut short if key economic releases in the next two days come in below forecast.
April's Institute for Supply Management manufacturing index, due at 1400 GMT, is expected to show a fall to a five-year low of 48.0, slightly down on the March figure of 48.6.
Weekly jobless claims at 1230 GMT will also be in focus ahead of Friday's April non-farm payrolls report.
"Real sector data should now test the Fed's resolve. That first test should take place today," ING said in a client note.
"U.S. data over the next two days should drag EUR/USD back to $1.5710 then $1.5790."
(Editing by Ron Askew)