The dollar fell to a seven-month low against the yen on Thursday as economic reports in both the United States and China added to investors' uncertainty about the global economic recovery.

The euro, however, rallied broadly after European banks borrowed less money than expected from a European Central Bank's tender, cooling concerns over euro zone banks' funding issues.

The dollar slid against the yen after reports on U.S. manufacturing, claims for jobless benefits and pending home sales added to concern about both the U.S. and global recovery. For full story, see

Chinese manufacturing PMI data showed slower growth in June, heightening concerns over the global economic recovery and weighing on high-yielding currencies.

Weaker than expected Chinese manufacturing data overnight fanned concerns about the outlook for the world's third largest economy and engine of global recovery, said Omer Esiner, chief market analyst at Commonwealth Foreign Exchange, Inc in Washington.

Unlike the greenback, the yen did benefit from the broad pullback in risk appetite, rising to a new seven-month peak against the U.S. dollar.

Midway through the New York session, the dollar was down 1.1 percent against the yen at 87.44 after going as low as 86.97, according to Reuters data JPY=. The low on electronic trading platform EBS was 86.96, its weakest in seven months JPY=EBS.

The euro EUR= advanced 2 percent to $1.2475, with the high at $1.2485, according to Reuters data, extending gains for a second day and rebounding from a two-week low around $1.2150 hit earlier in the week EUR=EBS. It was the biggest one-day advance since May 19 at current prices.

The euro zone currency was also supported by Madrid's ability to sell five-year bonds following Moody's Investors Service decision on Wednesday to put Spain's sovereign rating on review for a possible downgrade.

A successful Spanish bond auction and lower than expected demand for short-term loans from the European Central Bank alleviated liquidity concerns in the 16-member bloc and buoyed the euro, Esiner said.

Against the Swiss franc, the euro was last up 1 percent at 1.3318 francs EURCHF= after earlier bottoming at 1.3073 on EBS EURCHF=EBS -- its weakest since the single currency's 1999 launch. The dollar was down 0.9 percent against the franc CHF=, earlier touching its lowest since mid April.

Thursday's six-day ECB tender led to speculation that European banks may not be as desperate for funds as had been earlier thought, helping the euro to hold gains.

The ECB tender followed an offer of three-month funding the previous day, which received less bids than expected, indicating banks were fairly well positioned to repay ECB's 442 billion euros emergency loans on Thursday.

Against the yen, the euro was up 0.9 percent at 109.17 yen, recovering from an 8-1/2-year low hit this week EURJPY=.

Investors hoping for positive signs of U.S. recovery were disappointed.

The U.S. manufacturing sector grew in June for an eleventh straight month but at a slower rate than expected, according to an industry report. June marked the second straight month of slower growth.

Also on Thursday, contracts for pending sales of previously-owned homes plunged a record 30 percent in May, far more than expected, after a tax credit expired the prior month, a survey from the National Association of Realtors.

An earlier report showed the number of U.S. workers filing new applications for unemployment insurance rose unexpectedly last week.

Investor focus is now turning to the U.S. non-farm payrolls report for June set for release on Friday.

Investors are very wary of over-exposure to the dollar ahead of such a key event Friday, said Commonwealth's Esiner.

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