FOREX-Dollar rises to five-week high vs yen
* Lower volume on US holiday could lead to volatility
* Euro under pressure but holds above Tuesday low
* Expectations of Fed's reduction of stimulus keep dollar well bid
By Lisa Twaronite
TOKYO, July 3 (Reuters) - The dollar extended gains against the yen on Wednesday to its highest level since late May, lifted ahead of a U.S. holiday and key jobs data that could heighten expectations that the U.S. Federal Reserve will begin to reduce its monetary stimulus in the coming months.
U.S. financial markets will shut early on Wednesday and remain closed on Thursday in observance of the U.S. Independence Day holiday. Lower volume could lead to greater volatility, particularly ahead of Friday's release of the monthly jobs report for June.
Economists polled by Reuters expect payroll additions of 165,000 jobs last month and a lower unemployment rate of 7.5 percent.
The Fed has signaled its intent to begin to consider trimming its bond-buying stimulus as the U.S. economy improves. Such expectations have pushed up U.S. Treasury yields, which in turn have lifted the greenback.
A better-than-expected figure would likely push up both U.S. yields and the dollar. A disappointing figure would suggest the central bank will maintain its asset purchases for now, though some strategists and market participants believe it would not alter the overall trend toward a stronger dollar.
"Most believe that the Fed is mostly likely to taper at some point in 2013, so it's kind of like 'heads I win, tails you lose,'" said Andrew Wilkinson, chief economic strategist at Miller Tabak in New York.
"You buy the dollar on expectations of strong data, and even if it's softer, there shouldn't be a resumption of strength in the yen," he said, with the Bank of Japan committed to maintaining its dramatic monetary easing to aim for its target of two percent inflation in two years.
The dollar rose 0.1 percent from late U.S. trade to 100.72 yen after advancing as high as 100.86 yen, its loftiest level since May 31. On that day, it rose as high as 101.27 yen, with the 101-yen level now seen as a key resistance point and stop-loss orders said to lie around it.
The dollar index stood at 83.591, up about 0.1 percent and not far from 83.613 reached on Tuesday, which was its highest since May 30.
The euro slipped about 0.1 percent to $1.2971, holding above its Tuesday low of $1.2962, which was its lowest since June 3.
The European Central Bank is likely to emphasise at its monthly meeting on Thursday that the euro zone economy still needs help.
The Australian dollar steadied at $0.9143, holding above a three-year low of $0.9105 hit on Monday after the Reserve Bank of Australia kept the door open to interest rate cuts and tried to talk down the currency.
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