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FOREX-Dollar rally in balance after bumper July

* Dollar nurses losses after jobs data disappoints bulls

* Euro squeezes higher, but wary as ECB policy meeting looms

* Aussie dollar eyes RBA policy review for near-term impetus (Recasts after start of European trading, changes dateline from previous SYDNEY/TOKYO)

By Patrick Graham

LONDON, Aug 4 (Reuters) - The yen and Europe's major currencies were steady against the dollar on Monday and well off last week's lows after investors used Friday's robust but lower-than-forecast U.S. jobs report to rebase after three weeks of gains.

The euro was holding most of Friday's gains at $1.3423 in early European trade, although London-based traders and analysts said it was unlikely to take back much ground ahead of the European Central Bank's August policy statement on Thursday.

"Thursday's ECB meeting is likely to accentuate the euro's weakness, in our view," analysts from Barclays said in a note.

"ECB President Mario Draghi is likely to reaffirm the central bank's commitment to using extraordinary policy measures to ease monetary conditions, including the prospect of ABS purchases, and address very low euro area inflation."

U.S. nonfarm payrolls handed the dollar its biggest one-day fall in nearly a month on Friday, even if they did not do much to temper expectations for the start of the Federal Reserve's rate-tightening cycle.

The U.S. currency enjoyed its best month in July since January of last year, however, feeding expectations it may finally be ready to rally for the longer-term even if there seems to be little fuel for another surge this week.

Expectations of a broadly stronger dollar are being fuelled by the prospect of the Fed heading steadily toward a first rise in rates next year while the European Central Bank battles falling prices with further monetary easing.

Overall euro zone inflation in July was just 0.4 percent.

"The dollar has gained a lot in the last few weeks so we were probably due a positioning-led correction," said Geoffrey Yu, a strategist at Swiss bank UBS in London.

"The inflation report last week did not help the euro but we don't see any downside catalysts for it (from the ECB) this week. The main interest is whether the dollar can continue this rally."


The dollar index was last at 81.353, having retreated from a 10-1/2 month peak of 81.573. It had fallen 0.2 percent on Friday, a modest decline by any measure but still the biggest one-day fall in over three weeks.

Against the yen, the greenback recoiled to 102.62, having stretched to a near four-month high of 103.15.

Koji Fukaya, president at FPG Securities in Tokyo, said dollar/yen popping above the 103 yen threshold several times last week spelled a departure from the past six months, when the pair was stuck in a narrow band around 102.

"There is also a trend change in dollar/yen implied volatility," he said. "Vols have been dropping since the start of the year, but the downtrend was broken in July and one-year implied vols briefly rose above 8 percent last week. This could help initiate moves in the cash market."

One-year dollar/yen implied volatility, or the expected price swing, fell to a seven-year low of 6.90 percent in mid-July but rose above 8 percent on Friday, highlighting expectations of a new trading range in coming weeks.

The Aussie dollar also popped back above 93 U.S. cents , from two-month lows of $0.9275. After limited reaction to slightly stronger-than-expected Australian retail sales figures, Aussie bulls will be looking to an interest rate meeting by the Reserve Bank of Australia (RBA) on Tuesday.

The Bank of Japan and Bank of England (BOE) also feature this week but, as with the ECB and RBA, no policy action is expected.

(Editing by Catherine Evans)