FOREX-Dollar rises vs yen; fixation on upcoming U.S. jobs data

Reuters

* Dollar index holds close to eight-month low

* Full focus on Tuesday's U.S. payrolls data

* U.S. September existing home sales slip and prices slow

* Labor data seen key to when Fed will begin to taper

By Julie Haviv

NEW YORK, Oct 21 (Reuters) - The dollar gained against theyen on Monday, a day before the release of delayed U.S.government jobs data which could incite debate about when theFederal Reserve will scale back monetary stimulus.

The U.S. Labor Department's release of the September labormarket data on Tuesday is more than two weeks late after apolitical standoff in Washington resulted in a 16-day partialshutdown of the government.

The government's closure is expected to have inflictedenough damage to the economy that markets have concluded the Fedcould delay plans to trim its bond buying for several months.

But if the jobs data is solid, then speculation over whetherthe Fed can taper this year is likely to return, injecting somevolatility into the currency market.

Economists forecast that 180,000 jobs were created inSeptember, while the jobless rate is expected to have remainedsteady at 7.3 percent.

"For now all eyes will turn to U.S. nonfarm payrolls datatomorrow with markets anticipating a print near the 180K level,"said Boris Schlossberg, managing director of FX strategy at BKAsset Management in New York. "If the numbers are close toexpectations the greenback could see a relief rebound as theweek proceeds."

In early afternoon New York trade, the dollar rose 0.5percent against the Japanese currency to 98.14 yen, butremained below a near three-week high of 99.00 yen set lastThursday.

The dollar index was up 0.1 percent at 79.698, abovea trough of 79.478 touched on Friday, which was its lowest pointsince February.

While a majority of market players expect the Fed will beginreducing stimulus only next year, a few analysts still believetapering could start in December.

Those expectations may get a boost if the slew of upcomingU.S. data, including tomorrow's jobs report, indicate theeconomy gained momentum despite the fiscal stalemate that tookthe United States close to default.

"If labor markets turn out to be firmer than the consensusand Fed now think, we will see a rapid unwinding of short dollar and long bond positions," strategists at CitiFX, a division ofCitigroup, said in a report.

"In the first instance this will hit high-beta G10 andemerging market currencies," the firm said. "Longer term we seesome risk that the Fed has to revise downwards its aspirationsfor labor markets, if structural unemployment turns out to bemore significant relative to cyclical slack."

"This would be dollar positive, on the grounds that the Fedwould turn out to be more hawkish sooner than investors think,"CitiFX said.

Other analysts cautioned that the nonfarm payrolls reportmay have little impact, if any.

"The Fed cited U.S. fiscal gridlock as a reason to keep QE3in place in September, and we find that the manifestation ofthose fears into reality in October will warrant a holdirrespective of tomorrow's NFP (nonfarm payrolls)," saidChristopher Vecchio, currency analyst at FXCM-owned DailyFX.comin New York.

Chicago Federal Reserve President Charles Evans said onMonday it will be "tough" for the Federal Reserve to havesufficient confidence in the strength of the U.S. recovery byits meeting in December to start scaling back its bond-buyingcampaign.

Data gauging the state of the housing market, meanwhile,showed U.S. home resales fell in September and prices rose attheir slowest pace in five months, the latest signs highermortgage rates were taking some edge off the recovery.

The euro was flat at $1.3678, though not far from aneight-month high of $1.3703 touched on Friday and withinstriking distance of matching the 2013 peak of $1.3711,according to Reuters data.

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