(Recasts, changes dateline, byline, updates prices)
By Toni Vorobyova
LONDON, Nov 2 (Reuters) - The dollar edged down towards record lows against a basket of currencies on Friday as investors looked to a key U.S. jobs report for clues on whether growth is soft enough to warrant another rate cut next month.
The Federal Reserve cut rates by 25 basis points to 4.5 percent as expected on Wednesday, adding to a 50 basis point move in September.
The tone of the Fed's statement suggested it may wait until 2008 before easing policy further, but this gave the dollar only a brief respite as worries soon resurfaced about the health of the U.S. economy and the financial sector.
A Wall Street Journal article said Merrill Lynch (MER.N: Quote, Profile, Research) engaged in deals with hedge funds that may have been designed to delay reporting losses on mortgage-backed securities.
"We are seeing economic weakness in the U.S. and weakness in financial institutions... (So) investors are moving their assets overseas and capturing growth in emerging markets. There is reason still for investors to head out of the U.S. and sell the dollar," said Geoffrey Yu, currency strategist at UBS.
"If we see private payrolls and government payrolls both go down, that's definitely dollar-negative as well."
The euro was up 0.3 percent against the dollar at $1.4470 <EUR=> moving towards record highs above $1.45 struck in the immediate aftermath of this week's Fed rate cut.
The dollar index, which charts the greenback's progress against a basket of six major currencies, fell 0.1 percent to 76.515 (.DXY: Quote, Profile, Research). It set a record low of 76.465 on Wednesday.
The consensus forecast from analysts polled by Reuters is that the U.S. economy added 80,000 new jobs last month. Forecasts for the data, due at 1230 GMT, range from 10,000 to 110,000.
The jobs data has been pivotal in Fed expectations in recent months -- news of the first drop in employment levels in four years in August was seen as a key factor behind the September Fed rate cut, while fears of a U.S. recession were calmed a month later when the August number was revised to a small gain and September data also showed job creation.
"This report (for October) probably will provide more evidence of a downshift in employment, especially with the subprime fallout accentuating weakness in some services sectors," Citi said in a research note.
U.S. stocks tumbled on Thursday after brokerages downgraded shares of Citibank (C.N: Quote, Profile, Research) and Bank of America (BAC.N: Quote, Profile, Research) and the Federal Reserve injected $41 billion of temporary funds into the banking system, sparking fears of more credit crisis fallout.
This was followed by losses in Asian equities overnight and a lower open on European bourses.
But, unlike in recent sessions, falls in equities did not prompt currency investors to ditch risky carry trade investments where cheap borrowing in the yen funds purchases of higher return assets such as the New Zealand dollar.
The New Zealand dollar was up 0.8 percent at 87.5 yen <NZDJPY=R>, while the euro rose 0.4 percent to 165.87 yen <EURJPY=>.
"It's still concerns over the U.S. economy rather than global concerns," said Yu at UBS.
Eight out of the 20 primary bond dealers polled by Reuters after the Fed decision forecast a December rate cut. But the other 12 said rates would remain on hold [FED/R].