* Yen extends broad slide, focus shifts to data * Euro lower against the dollar ahead of ECB meeting * Overnight euro/dollar implied volatility rises * ADP report shows U.S. jobs gain of 139,000 By Gertrude Chavez-Dreyfuss NEW YORK, March 5 (Reuters) - The dollar rallied on Wednesday, shrugging off a softer-than-expected U.S. private-sector payrolls report for February that may have been affected by severe winter conditions.
U.S. private employers added 139,000 jobs in February, lower than market expectations, and gains the previous month were revised downward, a report by a payrolls processor showed. Economists surveyed by Reuters had forecast the ADP National Employment Report would show a gain of 160,000 jobs.
The dollar did tick lower in a knee-jerk reaction to the ADP data, but then moved back to where it was before the release of the report.
"The ADP is not a good predictor of the nonfarm payrolls report and the numbers were murky anyway because of the weather distortions," said Mark McCormick, currency strategist at Credit Agricole in New York.
"We probably have to wait until the March data comes in to get a good sense of how the underlying economy has actually performed." Investors were also focused on the European Central Bank's monetary policy meeting on Thursday, which analysts expect will result in some form of policy easing to ward off deflationary risks in the euro zone. That expectation has led to weakness in the euro against the dollar.
The dollar's gains were also helped by losses in the yen, which fell for a second straight day as concerns over a Russia-Ukraine standoff eased.
Markets, however, are keeping an eye on the region after Russia test-fired an intercontinental ballistic missile from a base not far from eastern Ukraine to a range in Kazakhstan.
At midmorning, the euro was down 0.2 percent versus the dollar at $1.3721, pulling back from Friday's two-month high of $1.3824.
Despite better-than-expected retail sales data for January and a survey that showed euro zone private-sector business growing at its fastest pace in more than 2-1/2 months in February, investors sold the euro, given the risk that the ECB could loosen policy on Thursday.
Inflation is running well below the ECB's target of just under 2 percent, and the central bank is under pressure to pull it out of a "danger zone" that threatens to stall the region's fragile recovery.
"I do not think the market has priced in the risk of ECB action fully," said Jeremy Stretch, a currency strategist at CIBC World Markets in London.
Indeed, overnight euro/dollar implied volatility, a gauge of how sharp currency swings will be, jumped to 11.50 percent from around 5 percent at the start of the week.
The euro was higher against the yen at 140.65 yen after gaining 0.8 percent on Tuesday, while the dollar rose 0.3 percent at 102.51 yen after posting its biggest one-day gain since mid-January a day earlier.
The greenback was also up 0.2 percent against the Swiss franc at 0.8885 franc.
Demand for safety faded on Tuesday after Russian President Vladimir Putin played down the prospect of a war in Ukraine, but market players remained on watch as Russian stock markets fell more than 1 percent on Wednesday.
- USA News