FOREX-Euro shines on upbeat euro zone data, yen slides
* Euro lifted by better-than-forecast euro zone PMI
* Euro hits 14-month high vs dollar
* Yen hits 2-1/2 year low versus euro, dollar
* Focus on U.S. payrolls data at 1330 GMT
By Jessica Mortimer
LONDON, Feb 1 (Reuters) - The euro rose to a 2-1/2 year high against the yen and a 14-month peak against the dollar on Friday, buoyed by better-than-expected euro zone manufacturing data and bets of a firm U.S. jobs number.
A survey showed euro zone factories had their best month in nearly a year during January, helped by solid German output, adding weight to the view that the troubled region may be over the worst.
The euro rose more than 1 percent to hit 126.09 yen, its highest since April 2010, extending gains after breaking above an options barrier at 126 yen.
Against the dollar, the euro also broke above a similar barrier at $1.3650 to hit $1.3671, its strongest since November 2011.
"The euro could continue to rise, depending on how the European Central Bank reacts (to the euro's recent gains)," said John Hardy, currency strategist at Saxo.
The ECB is already effectively supporting the euro by running a less aggressively expansionary monetary policy overall and banks are expected to contribute further to a crimping of its balance sheet by committing to pay back more emergency 3-year loans early. Details are due at 1100 GMT.
The yen also remained under heavy selling pressure on expectations of aggressive easing in Japan, with the dollar up 0.5 percent at 92.14 yen, having earlier hit 92.29 yen on trading platform EBS, its highest since June 2010.
Traders said the yen's drop accelerated as market players in Asia targeted and breached option barriers at 92.00 yen against the dollar and 125.00 yen versus the euro.
Selling the yen has become a one-way bet with Japanese Prime Minister Shinzo Abe heaping relentless pressure on the Bank of Japan to ease monetary policy aggressively to jolt the economy out of a decade-long malaise.
Traders said some investors were betting on a strong reading of U.S. jobs data, due at 1330 GMT. That would knock the safe-haven dollar against riskier, growth-linked currencies, including the euro but boost it further against the yen.
Reuters polling predicts the numbers will show a rise of 160,000 jobs and the jobless rate staying steady at 7.8 percent.
The U.S. ISM factory survey, a national report on the state of American manufacturers, is also due at 1500 GMT.
Saxo's Hardy warned, however, that currencies had already moved so much that a reading in line with expectations could disappoint the market.
"Now the bar has been raised by these moves and we will need to see a significant upside surprise to push it further. If the data is in-line to softer and if ISM data doesn't impress then we could see a consolidation," he said.
But analysts expect the broad trend of euro strength and yen weakness to continue, with some expecting the dollar to rise towards 100 yen.
"We expect sustained weakness in the yen because of Abe's aggressive policy changes," Michael Sneyd, analyst at BNP Paribas, wrote in a client note. He sees the dollar reaching 95 yen in the first quarter of this year.
In contrast, worries about Europe's debt crisis are slowly easing and the ECB's relatively more upbeat outlook for the region have made the euro more attractive.
"Money is going back into Europe... It's a big sentiment change more than anything else," said Jesper Bargmann, Asia head of G11 spot FX for RBS in Singapore.
The Australian dollar slipped 0.5 percent to hit a one-month low of $1.0364 after Chinese PMI data for January came in slightly below expectations while Australian PMI was also weak.
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