By Bradley Davis (DOW JONES NEWSWIRES) - NEW YORK

The dollar strengthened Wednesday as indications of a U.S. economy taking steps to recovery contrasted with concerns over labor strikes that could derail a plan to pull Greece out of a budget hole, weighing on the euro.

The strike announced by Greece's largest union could put a wrench in a plan accepted by the European Commission earlier Wednesday detailing Greece's plans to strip spending from its over-the-limit budget.

"The consequence is that the credibility of [budget]-sanitizing plans...will not be perceived as very credible," said Sebastien Galy, currency strategist at BNP Paribas in New York, keeping the euro under pressure.

Late Wednesday morning, the euro was at $1.3914 from $1.3964 late Tuesday, according to EBS via CQG. The dollar was at Y91.00 from Y90.37, while the euro was at Y125.60 from Y126.20. The U.K. pound was at $1.5935 from $1.5979. The dollar was at CHF1.0591 from CHF1.0550.

The ICE Dollar Index, which tracks the performance of the greenback against a trade-weighted basket of currencies, was at 79.310 from 79.000.

Despite Greece's plan to attack budget deficits, investors are worried the euro zone budget issues could spread to Portugal or even Spain, one of the euro zone's larger economies.

The possible Greek strikes show "in Europe, workers will be extremely reluctant to accept reforms," Galy said.

Greece's largest union said Wednesday it would hold a general strike on Feb. 24 in response to austerity cuts ordered by the government to save the country's crisis-hit economy, AFP reported.

"This is a serious problem," said John McCarthy, manager of currency trading at ING Capital Markets in New York. "There are concerns about contagion."

With several euro zone budgets under stress, Nomura Securities revised downward its forecast for the euro, predicting the common currency will sink to $1.36 before the end of the first quarter; a previous prediction had the euro rising to $1.52.

"We are now incorporating a 'fiscal risk premium' in the numbers, especially in the short-term, where the uncertainty is going to be the greatest," said Jens Nordvig, head of G10 FX Strategy at Nomura Securities in New York.

The dollar also was helped Wednesday by better-than-expected U.S. jobs data. U.S. labor markets showed positive signs of recovering in January, with private-sector jobs in the U.S. falling by only 22,000, the smallest drop since February 2008, and service jobs continuing to rise, according to a national employment report published Wednesday by payroll company Automatic Data Processing Inc., and consultancy Macroeconomic Advisers.

The ADP loss is slightly below the 30,000 drop projected by economists in a Dow Jones Newswires survey.

Meanwhile, a survey showed the U.S. service-sector activity continued forward, albeit with an anemic pace in January.

A report from the Institute for Supply Management Wednesday said that its non-manufacturing index moved to 50.5, from 49.8 in December, while the business activity index hit 52.2, from 53.2. The overall index had been expected to hit 51.0. Readings over 50 indicate expanding activity.

Investors are looking to the release of Friday's U.S. non-farm payrolls number as a key indicator of whether the U.S. economy is continuing along the road to recovery.

The economies of the euro zone, meanwhile, continue to dog the common currency, said Stuart Bennett, senior currency strategist at Calyon in London.

The European Commission earlier Wednesday accepted Greece's plan to slash its budget deficit but warned that further spending cuts and new taxes might be needed to fix the country's public finances.

Greece has pledged to bring its budget deficit below 3% of gross domestic product by 2012, following a shortfall of close to 13% in 2009. Under European Union rules, countries must keep their budget deficits below 3% of GDP.

The euro had gained to an overnight high of $1.4027 ahead of the report, but had given back most of those gains by the time it was released before it ticked to a loss after the U.S. employment report and sank even further on reports of Greek strikes.

Along with Greece, investors are zeroing on other festering budget issues in the euro zone, Bennett said.

Portugal could be seen "as the new weak link within the euro zone," Bennett said.

Spreads between Portugal bonds and German bunds, considered the euro zone standard bearer, have widened, indicating investors think Portugal is an increasingly risky bet, he said. Investors also are casting a nervous eye toward Spain, which also struggles with deficit spending.