NEW YORK (Reuters) - A much slower pace of US job losses in July and improvement in housing and manufacturing lifted US stocks Friday, but a more surprising beneficiary of the news was the US dollar.

For the past year, all investors had to do to forecast how the dollar or euro would trade was to look at Wall Street. When good news boosted stocks, the euro also rose, while the dollar rallied when the market swooned.

Bad news tended to boost the dollar because investors saw it as the safest store of value at a time when economies around the globe were contracting.

And with interest rates in the US and other developed economies at or near zero and expected to stay there, there was no yield advantage to be had in buying dollars on the occasional piece of hopeful US news.

Currency investors say that state of affairs may be changing now that a string of stronger-than-expected data has investors hoping the US economy will be the first developed economy to emerge from recession.

When data Friday showed employers cut far fewer jobs in July than in June, the dollar broke out of its pattern and rallied against major currencies.

"I think this could be the start of the unwinding of the inverse stocks-dollar correlation," said Greg Salvaggio, vice president at Tempus Consulting in Washington, DC. "We've seen improvement in housing, in manufacturing output and now clearly in the job environment."

At one point this year, the correlation between the euro-dollar rate and the S&P 500 index hit 50 percent, according to BNP Paribas calculations. That is, the euro and S&P 500 rose or fell in tandem half the time.

But that has slipped in recent days to between 30 percent and 40 percent, and BNP Paribas strategist Sebastien Galy said the link looks likely to weaken further.

Some have long argued that because the US was quick to slash interest rates and commit trillions of dollars to rescue the economy, it would be first to recover.

At some point that's expected to put upward pressure on interest rates and boost the dollar, especially since recovery in other economies, such as the 16-country euro zone, is thought to be lagging behind the US.

In recent weeks, US data has been starting to lend credence to such an outlook. The economy contracted by just one percent in the second quarter after shrinking 5.5 percent between January and March.

Improvements in the housing market, which economists argue are necessary for sustained recovery, and in factory output have also fed investor optimism.

Friday's dollar gains are "a sign that the currency markets are weaning themselves from the 'good-news-is-bad-news for the dollar' syndrome and returning to fundamental measures of economic growth and interest rate cycles," said Joseph Trevisani, chief market analyst at FX Solutions in Saddle River, New Jersey.

Indeed, long-dated US interest rates have been quietly moving in the dollar's favour while US interest rate futures on Friday started pricing in a federal funds rate of 1.25 percent by the mid-2010, the highest since June.

Of course, it's tough to make the case that the US economy is entirely out of danger, and that suggests the dollar-stocks link, while frayed, may not have snapped.

President Barack Obama said on Thursday the country may be seeing "the very beginnings" of the recession's end, though the White House expects the unemployment rate, which slipped from 9.6 percent to 9.4 percent in July, to still hit 10 percent.

Alan Ruskin, international strategist at RBS Securities, said that while "the idea of selling the dollar on strong US data because it is risk-positive is being appropriately challenged," expectations that the Fed could hike rates this year and thrice more in early 2010 "look premature".