FOREX-Dollar recovers from lows, U.S. jobs data key to gains

Reuters

* Euro near five-week high vs USD in wake of ECB

* USD near-term outlook hinges on non-farm payrolls

* Strength of US jobs will shape expectations for Fed taper

By Anirban Nag

LONDON, Dec 6 (Reuters) - The dollar rose against basket ofcurrencies on Friday, with its short term fortunes riding onwhether key U.S. jobs data can bolster the case for the FederalReserve to start scaling back monetary stimulus.

Analysts polled by Reuters expect the U.S. economy to havecreated 180,000 jobs in November, following 204,000 in theprevious month. Any upside surprise will keep alive lingeringexpectations the Federal Reserve may start to scale back itsbond-buying stimulus programme at the Dec. 17-18 meeting. Suchan outcome would help dollar against most major currencies.

On the other hand, a soft report will see investors expectthe Fed to maintain its stimulus programme for longer, apossible negative for the dollar but positive for riskier assetslike stocks.

"A generic dollar long (investor) will hope that thepayrolls number is strong enough to boost bond yields, but notstrong enough to boost or scare equities in equal measure," saidGeoffrey Yu, currency strategist at UBS.

If stock markets fall on expectations that the Fed willstart withdrawing stimulus sooner than most expect, the dollarcould see short term losses against the safe-haven, low-yieldingyen. The correlation between moves in dollar/yen, and swings inU.S. and Japanese shares, has tightened over the past few weeks.

The dollar rose 0.4 percent to 102.20 yen, having seta six-month high of 103.38 yen earlier in the week. The gainshelped the dollar index add 0.2 percent on the day to trade at80.394, off a five-week low of 80.231 set on Thursday.

EURO UNDERPINNED

The euro was hovering near a five-week high versus thedollar, having powered higher after the European Central Bankgave no fresh indication that it would ease policy anytime soon.

The common currency last fetched $1.3655, havingclimbed to $1.3677 on Thursday, a level not seen since Oct. 31,with hedge funds cited as buyers at lower levels. Against theyen, it rose to 139.535.

While ECB President Mario Draghi said the bank was ready totake fresh policy action to support a fragile recovery, he waslight on details, including whether the bank would use anegative deposit rate.

Draghi also noted that liquidity in the banking system hadimproved since the last cash injection, or LTRO, and attachedconditions for any repeat. These comments saw short term marketrates rise, which in turn helped the euro.

"Yesterday's meeting could leave those betting on moreindications of aggressive ECB easing disappointed," saidValentin Marinov, currency strategist at Citi. "That could keepeuro supported against the dollar, yen and sterling."

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