* U.S. non-farm payrolls report showed solid jobs creation * Jobs data does not resolve debate on Fed's winding down of QE * Dollar on track for worst weekly loss vs yen in nearly 3 years By Gertrude Chavez-Dreyfuss NEW YORK, June 7 (Reuters) - The dollar recovered on Friday from steep losses in the previous session after a government report showed a reasonably healthy pace of U.S. job creation in May, confounding investors' dour expectations before the release of the data. The consensus forecast was 170,000 ahead of the jobs number, according to economists polled by Reuters. However, most investors had priced in a downbeat figure going into the non-farm payrolls report after Wednesday's softer-than-expected U.S. private-sector employment survey and a weak employment index in the Institute for Supply Management's non-manufacturing report. The Labor Department's report showed that the U.S. economy created 175,000 jobs last month, with the unemployment rate edging up to 7.6 percent in May from 7.5 percent in April. However, analysts were heartened by the separate household survey, which showed employment of 319,000 in May. Still, the report does not resolve questions about whether the Federal Reserve will start cutting back its quantitative easing program. Traders of short-term U.S. interest-rate futures still expect the Fed to hold rates near zero until early 2015. "We do not see the number as providing clarity on the state of improvement in labor markets and the potential for a reduction in the pace of asset purchases by the Fed," said Michael Gapen, senior U.S. economist at Barclays Capital in New York. He added that the improvement in the labor market remained moderate and, if anything, the trend suggested that the U.S. economy was slowing in the second quarter. "In our view, this means that the Fed is unlikely to take a decision to taper purchases at its June meeting, preferring rather to see several more employment reports before the September FOMC meeting," Gapen said. In midday New York trading, the euro fell 0.3 percent for the day to $1.3208. On Thursday, it hit a peak of $1.3306, its highest in more than three months, after European Central Bank President Mario Draghi gave no hints that further monetary easing was imminent. The euro, however, was poised to end the week on a high note with gains of 1.8 percent, its best weekly showing since mid-January. The dollar, meanwhile, rebounded against the yen to hit session highs of 97.75 yen, recovering from a two-month low earlier in the day. Just before the U.S. jobs report, the dollar was down 1.6 percent. On Thursday, the greenback suffered its biggest one-day drop against the yen in three years. It was last at 97.52 yen, up 0.6 percent. Technical analysts said intraday bias remained on the downside for dollar/yen, as the rise from 77.13 yen, the low seen in mid-September last year, has topped out at 103.73. ActionForex.com said it sees a further fall in the dollar to the support area of 92.56 yen. On the upside, however, above 98.85 yen will shift the bias back to positive. For the week, the dollar was on track to post its worst weekly loss since mid-July 2009. The greenback also showed gains against the Swiss franc, sterling, as well as the Australian and New Zealand dollars. The dollar, however, fell against the Canadian currency, with the loonie benefiting from a report that showed Canada added a robust 95,000 jobs in May, its largest monthly addition of new jobs in 11 years. By midday, the U.S. dollar was down 0.4 percent at C$1.0225 .