* Weak U.S. jobs, services data add to dollar's woes
* Euro hits 17-month high but fades ahead of ECB meeting
* Dollar at 6-week low vs yen; high-yield FX struggles
* One-month euro/dollar implied vols rise again (Updates prices, adds more details on options)
By Gertrude Chavez-Dreyfuss
NEW YORK, May 4 (Reuters) - The dollar slumped to a three-year low against major currencies on Wednesday and its outlook darkened further as surprisingly soft economic data underpinned expectations that U.S. interest rates will remain low this year.
The greenback also fell to a record low against the Swiss franc and against the yen fell below 80.50, the lowest level since major central banks intervened to weaken the Japanese currency on March 18.
Separate reports on Wednesday showed a sharp slowdown in the vast U.S. services sector and less hiring by private companies in April.
"U.S. data have not been strong enough for the Fed to resume raising interest rates," said Geoffrey Yu, senior currency strategist at UBS in Stamford, Connecticut. For details, see [ID:nN04209762]
"The Fed has raised the bar for a policy tightening and it's going to remain the case for some time ahead. It's just a question of, When will the Fed really signal a change in direction? Right now, that doesn't seem to be the case."
In late afternoon trading, the ICE Futures' dollar index, which measures the greenback against a basket of major currencies, dropped to 72.696, its weakest level since July 2008. The index has fallen in 11 of the last 12 sessions and is down 7.7 percent this year <.DXY>.
The euro, on the other hand, remained fairly well supported on expectations of higher euro zone interest rates and strong sovereign demand.
The European Central Bank is scheduled to hold a monetary policy meeting on Thursday. It raised rates in April for the first time since 2008, but may hold them steady at Thursday's meeting.
Markets, however, have already fully priced in expectations of an ECB rate hike in July, on the need to rein in inflation, and have started to factor in some probability of an increase in June.
Investors shrugged off news that Portugal had become the third euro zone country in the last year to need a bailout.
The single currency rose as high as $1.49404
They said a move above $1.50 is likely but would probably have to wait until after the ECB meeting.
Implied volatility in one-month euro/dollar options gained, rising to 11.20 percent on Wednesday from 10.90 percent
Options traders were also nervous that the ECB's president, Jean-Claude Trichet, may disappoint investors and make less-hawkish comments than in his previous statements.
In addition, risk reversals, a broad measure of sentiment in the options market, on one-month euro/dollar options are still betting on a decline in the euro against the dollar. The gauge is showing a solid bias for puts despite an 11 percent surge in the single currency this year.
On Wednesday, euro/dollar risk reversals were at -1.50 vols
Thomas Stopler, chief currency strategist at Goldman Sachs in London, said continued concerns about euro zone debt are only partly the cause.
"It is also important to recognize that many other dollar crosses still display a similar skew," he said. "This in turn suggests FX option markets continue to be influenced by cross asset hedging flows."
In other currencies, the dollar fell to a record trough against the Swiss franc at 0.8554 franc
Against the yen
If it falls further, analysts said it could put markets on alert for official intervention to slow the pace of yen gains.
A strong yen could hurt Japan's export-led economy as it struggles with slow growth and the aftermath of the March earthquake and tsunami.
The slide in commodities supported the greenback against commodity-linked currencies such as the Australian and Canadian dollars.
The Australian dollar fell further from a nearly three-decade high of US$1.1012; it was last at US$1.0743, down 0.9 percent
The Canadian dollar also fell, pushing the greenback 0.5 percent higher at C$0.9573