Investors sold dollars Friday, taking advantage Thursday's powerful greenback rally to protect some profits ahead of the weekend.

Traders said weak U.S. stocks contributed to the dollar's third of a percent decline against the euro and Swiss franc and marginal drop against the yen after having rallied more than 1 percent against all three Thursday.

After a rather paltry week in terms of economic data, investors will have more to chew over starting Monday, with a slew of reports from Group of Seven countries.

"I don't think there are any numbers coming out that will show any great strengthening of the U.S. economy," said John Hazelton, director of foreign exchange at PNC Bank in Pittsburgh.

"Still in the midst of this rally for the dollar, I think it trades in the technical frame of reference, which means staying within the current trading range," he added.

Key reports for the United States are the July durable goods order, which is expected to rise after falling in June. August U.S. consumer confidence is seen nudging higher. The Chicago PMI report, a measure of mid-west manufacturing is expected to show an increase for August.

The most influential report out of Europe, the Ifo index, a measure of German business sentiment is expected to show a slight decline, while Japanese second quarter gross domestic product is expected to rise slightly.

The euro traded near its session high of 97.31 cents, a gain of roughly 0.40 percent compared with Thursday's New York close. But earlier in the session, the euro did make a fresh two week low of 96.66 cents.

The dollar was down near its session low against the Swiss franc at 1.5119 francs, a loss of roughly 0.50 percent on the day. Before losing ground, the dollar touched a fresh two month high of 1.5240 francs.

The dollar also shed 0.23 percent against the yen, trading at 119.59 yen on the day, down from the two week high of 120.28 yen.

"People overextended themselves a bit earlier this week and now they are suffering," said a Swiss bank trader. "With all the activity in the past 24 to 48 hours, a lot of positions had been cleaned out and now we seem to be trading in a vacuum."

For the week, the dollar is up more than 1 percent against the euro and up 1.6 percent against the Swiss franc and yen.

After hitting seven week highs Thursday, U.S. stocks stocks trimmed the gains. The Dow Jones industrial average fell 2 percent. The Nasdaq Composite index lost 2.97 percent and the S&P 500 lost 2.27 percent.

U.S. Treasuries, however, were stronger on the back of stock market losses, which could be helping to stem the dollar's losses. Additionally, a surge in demand for U.S. corporate debt -- $14 billion issued this week -- was snapped up by investors seeking alternatives to low-yielding Treasuries, is also a positive for the dollar, analysts said.

"The worst fears about U.S. asset markets are dissipating, so the risks of significant outflows have diminished," said Robert Sinche, head of Global Currency strategy at Citibank in New York, adding: "The question is whether inflows will accelerate sufficiently to finance the significant U.S. current account gap."

The dollar has lost roughly nine percent against the euro, yen and Swiss franc this year, partly due to worries about the gaping U.S. current account deficit.

The week's corporate supply is the most the market has seen in at least three months.

Sinche said that, by some estimates, 20 percent, or about $3 billion, of the new issuance was taken up by overseas buyers, a "meaningful flow in a summer environment."

RETHINKING THE FED

The recovery in U.S. asset prices was cited by Deutsche Bank as a key reason why the bank had changed its mind about a near-term rate cut by the U.S. Federal Reserve.

"We now see the Fed as more likely to tough it out without a rate cut at the September meeting," Deutsche Bank chief U.S. economist Peter Hooper said in a research note.

"The economic numbers have firmed a bit most recently (and) financial markets have rallied impressively."

Deutsche Bank had been one of seven Wall Street primary dealers, who trade directly with the Fed, that had expected another cut in interest rates before the end of the year to shore up a faltering economic recovery.