* U.S. private employers increase hiring in December
* U.S. weekly jobless claims fall more than expected
* U.S. rate futures pare back rate expectations after data
(Recasts, adds bullets, byline, NEW YORK dateline; updates prices)
NEW YORK/LONDON, Jan 4 (Reuters) - The dollar slipped on Thursday after hitting two-week highs the day before as the positive impact of better-than-expected U.S. labor market data faded and investors braced for the all-important nonfarm payrolls report on Friday.
The U.S. currency earlier advanced following data showing U.S. private employers hired more workers than expected in December. Private payrolls increased by 164,000 jobs last month, the ADP National Employment Report showed, the largest monthly increase since August. Economists polled by Reuters had forecast private payrolls rising by 115,000.
At the same time, initial claims for state unemployment benefits dropped by 18,000 to a seasonally adjusted 202,000 for the week ended Dec. 30, also bolstering the dollar. Economists polled by Reuters had forecast 216,000 claims for the latest week.
The dollar initially rose after the data, but gains have since eased.
"Yes, we saw a beat with the number of jobs created in the ADP report, but I would still point to the JOLTS yesterday, which showed quit rates coming down and hiring rates coming down," said Thierry Albert Wizman, global FX and rates strategist at Macquarie in New York.
"So there is still ... weakening being priced in the labor market. I suspect that tomorrow with nonfarm payrolls, it will be manifested in lower wage inflation," he added.
Following Thursday's data, U.S. interest rate futures reduced expectations on the number of rate cuts for 2024 to four rate decreases of 25 basis points each, from about six late on Wednesday, according to LSEG's interest rate probability app.
"It's important to keep in mind that the Fed has to go through a few steps before it can cut rates," said Wizman.
"First, it has to go to a neutral bias, then an easing bias, before it can cut rates. That can take a few meeting cycles."
Wednesday's release of the minutes of the Federal Reserve's Dec. 12-13 policy meeting was viewed as modestly hawkish by market participants. Fed officials "stressed ... that it would be appropriate for policy to remain at a restrictive stance for some time until inflation was clearly moving down sustainably toward the (Federal Open Market) Committee's objective."
"Certainly, the Fed minutes yesterday were not suggesting a rate cut in March," Wizman said.
In cryptocurrencies, bitcoin gained 2.9% to $44,114 . Investors are anticipating the approval by the U.S. Securities and Exchange Commission of the first spot bitcoin exchange traded fund over the next week or so.
In late morning trading, the dollar index was slightly lower at 102.33, after hitting two-week highs on Wednesday.
Against the yen, the greenback rose to two-week peaks, climbing for three straight days. The dollar was last up 1% at 144.7 yen, on track for its largest one-day gain since late October.
Macquarie's Wizman does not believe dollar gains since the beginning of the year could be sustained despite a pushback in rate cut expectations.
"I do think the U.S. economy will slow, and it's going to be a consumer-led slowdown and we're going to see convergence between growth rates in the U.S. and the rest of the world this year," Wizman said.
"Over the course of the first six months of the year, we can see some dollar weakness relative to the euro, sterling, and the yen."
The euro rose 0.3% against the dollar to $1.0956, after higher inflation data in Europe.
French consumer prices rose in December, in line with expectations, preliminary data from the national statistics body showed on Thursday, due to an increase in energy and services prices over the year. In Germany, CPI inflation rose to 3.7% in December, as expected, from 3.2% a month earlier.
Sterling also climbed against the dollar following data showing British borrowers increased demand for loans and business service were more resilient than feared in Britain
UK net borrowing data showed British borrowers increased demand for loans, in a sign households are mostly coping with high interest rates. Net borrowing by British consumers was the highest in nearly seven years in November.
A separate business survey, the UK Services Purchasing Managers' Index (PM), showed Britain's services firms grew more strongly in December than initially thought and optimism hit a seven-month high.
Sterling was last up 0.3% at $1.2698. It rose as much as 0.5% to $1.2728 after the data release, having fallen 0.87% on Tuesday to a three-week low, in its biggest one-day drop since mid-October.
(Reporting by Gertrude Chavez-Dreyfuss in New York and Joice Alves in London; Additional reporting by Rae Wee in Singapore; Editing by Mark Potter, Angus MacSwan and Jonathan Oatis)
