* Graphic on world forex rates:http://tmsnrt.rs/2egbfVh
By Saikat Chatterjee
LONDON, May 14 (Reuters) - The dollar strengthened towards a three-week high on Thursday as stock markets weakened broadly after Federal Reserve Chairman Jerome Powell dismissed speculation about negative interest rates.
European stock markets were down more than 1% while U.S. stock futures indicated a negative start for Wall Street, pointing to a third consecutive session of losses and sending investors to the relative safety of the greenback.
Comments from U.S. President Donald Trump also lifted the dollar. Trump said he supported a strong dollar, a day Jerome Powell rejected the idea of using negative interest rates.
Though Powell is the latest in a parade of policymakers to brush off the notion that rates may enter negative territory, Fed futures were pricing a small chance of sub-zero U.S. rates by March next year.
Powell also said the recovery could take some time as he warned of a recession worse than any since World War Two.
"His words were a blow to the optimism that had been building in the markets over the last few weeks as the relaxation of social distancing restrictions had generated expectations of a V-shaped recovery from the virus crisis," said Raffi Boyadjian, senior investment analyst at XM.
Against a basket of its rivals, the dollar edged 0.2% higher to 100.37, hovering below a three-week high of 100.44 tested earlier this week.
While the Fed chairman also urged more fiscal stimulus to support the economy, Mark Haefele, chief investment officer at UBS Global Wealth Management said the ongoing tensions between Republicans and Democrats suggested additional stimulus is "unlikely to immediately materialize".
Among major currencies, the Australian dollar led losers after data showed the country shed jobs in April at the fastest pace on record, suggesting more monetary and fiscal easing may be needed to support the economy.
The Aussie fell 0.3% to $0.6437 after data showed unemployment increased by 594,300 in April, slightly more than the median estimate. The jobless rate rose to a five-year high.
The pound also tumbled below the $1.22 line for the first time in more than five weeks after Wednesday's data showed Britain's economy shrank by a record 5.8% in March as the coronavirus crisis escalated.
Investors are now focused on data from the United States and Europe in the next two days for more clues on the depth of the downturns there. U.S. initial jobless claims data is due on Thursday while the eurozone reports first-quarter GDP data on Friday. (Reporting by Saikat Chatterjee in London; Additional reporting by Stanley White in TOKYO; Editing by Christopher Cushing)