FOREX-Dollar shade weaker after gaining on jobs data

SINGAPORE, May 5 (Reuters) - The U.S. dollar was a shade weaker on Monday but held on to most of last week's gains, supported by speculation the Federal Reserve will not need to cut interest rates again.

At 0250 GMT in holiday-thinned Asian trading, the euro had risen to $1.5460 EUR=, slightly above Friday's late level of $1.5424 but still well below April's record highs around $1.6018.

The yen remained weak as returning risk appetite encouraged traders to borrow yen at low interest rates to invest in high yielding currencies, such as the Australian AUD= and New Zealand NZD= dollars. One U.S. dollar bought 105.34 yen, far above 95.71, a 13-year low hit in March.

Activity was light with markets in Tokyo and London off for holidays and traders waiting to see if a survey on the U.S. services sector later in the session suggests the economy is as resilient as other recent figures have indicated.

The dollar firmed on Friday after U.S. payrolls fell in April by a smaller-than-expected 20,000, while the jobless rate actually dipped to 5.0 percent. [ID:nN02551119]

"The drop in the unemployment rate has strengthened the market's conviction that the Fed is done," said Darren Gibbs, an economist at Deutsche Bank.

"For the first time this year, near-ahead Fed funds expectations are flat with the actual Fed funds rate," he said. "What's more, the market is pricing a decent chance of a rate hike by the end of the year."

Still, while the jobs data was evidence the U.S. economy may not face as severe a slowdown as some had feared, analysts also said market participants could be prematurely pricing in an end to the Fed's rate cutting cycle because more dramatic weakness in the labour market was in store.

Strategists at RBC Capital Markets said a decline in average hourly earnings to the slowest pace since January 2006 was worrisome. The figures were included in Friday's jobs report.

"Slower income growth, lingering worries over the housing sector, and tighter credit markets remain a potent cocktail of bearish factors for the U.S. consumer and the broader economy," RBC said in a note.

LIGHT DATA WEEK

Investor sentiment was helped by the Fed's expansion of its twice-weekly Term Auction Facility (TAF) to $75 billion from $50 billion. It also expanded the collateral that can be pledged in its Term Securities Lending Facility (TSLF) auctions. [ID:nL02844155]

"That takes the pressure off the Fed to ease rates to help liquidity," said Gerrard Katz, head of north Asian FX trading at Standard Chartered Bank.

"But the stock market ended up flat and UBS news of redundancies is a reminder that a lot still has to work through the U.S. and global economy."

The Swiss bank is due to report first-quarter results on Tuesday. It is expected to announce job cuts for up to 10 percent of its investment banking workforce of 22,000. [ID:nL02632700]

The U.S. stock market rise on Friday was fairly modest, and the dollar's rally had lost momentum on Monday.

The New York Board of Trade's dollar index, which charts the dollar's performance against a basket of six currencies, was in a narrow range around 73.40 on Monday, having hit two-month peaks at 73.698 .DXY on Friday.

Still, traders said they expected the dollar to hold on to its gains in a relatively light week for data. The main U.S. release on Monday is the ISM non-manufacturing survey for April and only a small decline to 49.1, from 49.6 in March, is expected. [ID:nN02160469]

"The market continues to consolidate these moves and, given the broader dollar rally, we should see some sellers around these levels," Katz said.

Central banks in Australia, Britain and the euro zone hold policy meetings this week but none is expected to change rates. (Additional reporting by Wayne Cole) (Reporting by Vidya Ranganathan; Editing by Neil Fullick)