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Dollar drops after feeble US wage growth data

New York - The dollar fell against other major currencies Friday after an extremely weak report on US worker pay raised questions about Federal Reserve plans to raise near-zero interest rates this year.

Wages and salaries rose 0.2% in the second quarter, decelerating from 0.7% growth in the first, the Labor Department said. Analysts noted it was the smallest growth in civilian employment costs on record.

"The central question is whether this very sharp and unexpected decline in wages and salaries will trigger alarm bells at the Fed, causing a delay for the first rate hike," said Ozlem Yaylaci, US economist at IHS Global Insight.

The dollar, which has been on a strong run-up in the past weeks, shed 0.5% as the euro bought $1.0984 and slipped 0.2% against the yen at 123.91 yen.

"The US Employment Cost Index, not typically a market mover but rather a peripheral data point that only more serious fundamental-leaning traders watch, proved to be a seismic powder keg," said Christopher Vecchio at DailyFX.

"Wage growth in the US - something Fed policymakers have said they expect to increase and are watching to increase before rates are raised - just plummeted to its weakest pace of growth since 1982."

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