* Dollar gains further against the yen
* Higher U.S. Treasury yields expected to buoy dollar against yen
* ECB's Draghi says watching data and ready to act again
* Australian dollar falls, focus on Tuesday's RBA decision
By Julie Haviv
NEW YORK, May 6 (Reuters) - The dollar climbed against the yen for a third straight session on Monday and appeared ready to take another stab at reaching the key 100 yen mark as last week's strong U.S. labor market data renewed optimism about the U.S. economy.
The dollar, up a whopping 14.6 percent against the yen so far in 2013, is likely to continue strengthening as the Bank of Japan tries to buoy its deflation-plagued economy by flooding the market with liquidity through its $1.4 trillion bond buying plan announced early last month.
On the other hand, while the U.S. Federal Reserve is widely expected to continue buying $85 billion a month in bonds, Friday's solid April jobs figure and upward revisions to prior months have revived talk the central bank may start to reduce asset purchases under its quantitative easing program later this year.
"A break through 100 yen in the near-term has greatly increased after Friday's payrolls data because it indicated the economy is not as weak as many had feared," said Omer Esiner, chief market analyst at Commonwealth Foreign Exchange in Washington D.C.
The dollar last traded up 0.4 percent at 99.38 yen, not far from its session peak of 99.45 yen - its highest since April 25 - according to Reuters data.
The greenback hit a four-year high of 99.94 on April 11, but the pair failed to break the psychologically important 100 mark as option traders defended the level and as worries about the U.S. economy pressured the dollar.
"While options barriers have prevented a break of 100 yen in recent weeks, no resistance lasts forever, while a move higher in Treasury yields will be a leading indicator of where it is headed," Esiner said.
Friday's jobs data sent U.S. Treasury yields, which move inversely to price, to their highest levels in three weeks. Yields should remain at relatively higher levels as investors prepare for $72 billion in new supply this week.
The euro, meanwhile, slipped against the dollar after European Central Bank President Mario Draghi said the bank is closely watching incoming data and is ready to take further action if needed to address economic weakness.
Nevertheless, trading volume was thin due to holidays in Britain and Japan, traders said.
The euro was flat at 129.84 yen, having earlier risen to 130.40 yen, a two-week high.
Friday's jobs data had investors embracing risk and sent Wall Street stocks to new highs. Rising risk appetite tends to pressure the yen as investors sell the lower-yielding Japanese currency to buy assets with greater returns.
Against the dollar, the euro dropped 0.2 percent to $1.3082 , pulling further away from a two-month high of $1.3242 set last Wednesday. It hit a session low of $1.3052 after Draghi's comments.
"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.
Adding to the euro's bearish tone, surveys showed the euro zone's business downturn dragged on in April and Germany is now suffering a contraction in business activity that has long dogged France, Italy and Spain.
The ECB cut interest rates last week and Draghi hinted at the possibility of negative deposit rates. This would penalize banks for hoarding cash and could drive money out of the euro zone.
The Australian dollar fell 0.6 percent to $1.0248, 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.