FOREX-Dollar extends gains versus yen on better U.S. outlook
* Dollar gains further against the yen, nears 100 yen mark
* Optimism about U.S. economy re-emerges after jobs data
* Euro struggles versus dollar after weak services PMI
* Australian dollar falls, focus on Tuesday's RBA decision
By Jessica Mortimer
LONDON, May 6 (Reuters) - The dollar rose against the yen on Monday as optimism about the U.S. economy resurfaced after Friday's above-forecast jobs data while the euro struggled on more evidence of euro zone weakness.
The dollar was up 0.2 percent at 99.23 yen, having earlier hit 99.455 yen, its strongest in more than a week.
This brought it nearer the 100 yen mark that has acted as strong resistance in recent weeks, but thin volumes due to holidays in Britain and Japan limited gains.
Expectations the Federal Reserve may start to reduce asset purchases under its quantitative easing programme resurfaced after Friday's jobs figures.
The yen was also expected to weaken in coming weeks given a Bank of Japan pledge to inject $1.4 trillion into the economy.
"Dollar/yen looks to be probing the upside not seen since end of April and preparing itself for yet another push on the mystical 100 level," said Richard Wiltshire, chief FX Broker at ETX Capital, adding stop-loss buy orders were triggered on the break above 99.30.
He said the dollar could extend gains towards April's four-year high of 99.95 yen if stop loss orders were triggered at 99.50 yen, but it could run into offers closer to 100.
Against a basket of currencies the dollar was up 0.1 percent at 82.168.
EURO SEEN STRUGGLING
The euro was down 0.1 percent at $1.3103 against the dollar, having hit a two-month high of $1.3243 last week.
Analysts said the euro could drop further after European Central Bank President Mario Draghi last week hinted at the possibility of negative deposit rates. This would penalise banks for hoarding cash and could drive money out of the euro zone.
Surveys on Monday highlighted a weak euro zone economy and the prospect of a deeper recession this quarter.
"The risks are now tilted to the downside for euro/dollar and it could test $1.30," said Arne Lohmann Rasmussen, head of FX research at Danske Bank in Copenhagen.
However, recent falls in Italian and Spanish borrowing costs have also helped the euro, which hit a two-week high of 130.40 yen.
The Australian dollar fell 0.6 percent to $1.0249, hurt by a surprise drop in retail sales and slower Chinese services activity.
The Reserve Bank of Australia meets on Tuesday. Markets imply a 50-50 chance of a rate cut, but a Reuters poll showed most economists see rates steady at 3.0 percent.