NEW YORK (AFP) -- The euro stabilized above 1.26 dollars after weak U.S. manufacturing data, traders said.

The single European currency bought 1.2612 dollars compared to 1.2626 late Thursday in New York.

The dollar was meanwhile trading at 118.66 yen against 118.17 on Thursday.

The Philadelphia business activity index, which measures manufacturing activity in the northeast U.S. region, slumped to minus 0.7 in October from minus 0.4 in September, confounding market expectations for a solid improvement.

"The dollar has come under a good deal of pressure of late courtesy of U.S. economic data that have cast some doubt on the strength of underlying economic activity and associated inflationary pressures at a time of falling oil prices," said Simon Derrick, analyst at the Bank of New York.

"The damage to the dollar has been wrought by weaker than expected consumer and producer price data and particularly poor activity figures -- such as the October Philly Fed," he added.

However, traders said expectations that the Fed will hold U.S. rates steady when it meets on Tuesday and Wednesday, and for the foreseeable future, revived buying interest in the dollar.

Friday's major mover was the pound, which rose to two-week highs against the dollar after strong third-quarter growth figures cemented expectations that the Bank of England will raise interest rates on November 9.

British gross domestic product grew by 0.7 percent in the third quarter from the second, in line with analysts' forecasts, and by 2.8 percent from a year earlier, the highest annual rate since the third quarter of 2004.

"The data should keep the (Bank of England) on track for a November rate hike," said UBS currency strategist Daniel Katzive.

The pound bought 1.8829 dollars at 2100 GMT, from 1.8781 late Thursday.

The dollar stood at 1.2591 Swiss francs, from 1.2570.