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

* 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 of currencies on Friday, with its short term fortunes riding on whether key U.S. jobs data can bolster the case for the Federal Reserve to start scaling back monetary stimulus.

Analysts polled by Reuters expect the U.S. economy to have created 180,000 jobs in November, following 204,000 in the previous month. Any upside surprise will keep alive lingering expectations the Federal Reserve may start to scale back its bond-buying stimulus programme at the Dec. 17-18 meeting. Such an outcome would help dollar against most major currencies.

On the other hand, a soft report will see investors expect the Fed to maintain its stimulus programme for longer, a possible negative for the dollar but positive for riskier assets like stocks.

"A generic dollar long (investor) will hope that the payrolls number is strong enough to boost bond yields, but not strong enough to boost or scare equities in equal measure," said Geoffrey Yu, currency strategist at UBS.

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

The dollar rose 0.4 percent to 102.20 yen, having set a six-month high of 103.38 yen earlier in the week. The gains helped the dollar index add 0.2 percent on the day to trade at 80.394, off a five-week low of 80.231 set on Thursday.


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

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

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

Draghi also noted that liquidity in the banking system had improved since the last cash injection, or LTRO, and attached conditions for any repeat. These comments saw short term market rates rise, which in turn helped the euro.

"Yesterday's meeting could leave those betting on more indications of aggressive ECB easing disappointed," said Valentin Marinov, currency strategist at Citi. "That could keep euro supported against the dollar, yen and sterling."