* U.S. non-farm payrolls worse than expected
* But unemployment rate falls
* Aussie gains after mining tax bill diluted (Updates to midday)
By Nick Olivari
NEW YORK, July 2 The U.S. dollar slipped against the euro on Friday, extending the previous day's steep losses on concerns over the U.S. economic recovery after disappointing U.S. jobs data.
U.S. private payrolls rose less than expected in June and overall employment fell for the first time this year as thousands of temporary Census jobs ended, indicating the economic recovery is failing to gain traction. For more details, clicknN01165161.
The euro gained against the dollar as investors looked past economic problems in the euro zone and instead focused on the possibility of a stalled economic recovery in the United States.
"What this does is, it reinforces the market's view that the U.S. recovery is losing steam," said Greg Salvaggio, vice president of trading at Tempus Consulting in Washington.
"There's a growing concern in the marketplace right now that previously the U.S. was thought to be the economy which was going to drive forward, regardless of events happening elsewhere in the world," Salvaggio added. "Now there are some very, very serious concerns that the U.S. recovery is beginning to stumble."
Friday's U.S. jobs report follows weak housing and manufacturing data on Thursday and weak consumer confidence data earlier in the week.
In early New York trade, the euro last traded at $1.2591 EUR=EBS on electronic trading platform EBS, up 0.6 percent on the day. The single currency rose as high as $1.2613 -- the first time over the 1.2600 level since May 21.
"We are at a phase at the moment when the dollar reacts negatively to poor U.S. data, which we have quite a lot recently," said Tom Levinson, currency strategist at ING in London.
The euro was already bolstered by easing concerns about euro-zone liquidity problems after a lower take-up of European Central Bank funding and successful bond auctions on Thursday.
On Thursday, the euro surged more than 2.0 percent in its biggest one-day advance since mid-March last year. However, some analysts remained cautious about the single currency ahead of European bank stress test results and a Greek T-bill issue due later this month.
The Australian dollar AUD= rose for the second straight day, climbing as high as $0.8510, before paring gains to trade at $0.8457, up 0.3 percent for the day, and also rose against the yen after the Australian government agreed to a watered-down version of a proposed mining tax, easing concerns the tax would hurt business investment. [ID:nSGE6600LW]
"The Australian dollar was buoyed by a mining tax deal reached in that country," said TJ Marta, chief market strategist at Marta on the Markets, in Scotch Plains, New Jersey.
The dollar was last at 87.77 yen on EBS JPY=EBS, up 0.2 percent for the day.
On Thursday, the greenback hit a seven-month low against the yen JPY=. Japanese exporter offers were likely to emerge in the low 88-yen range, a dealer at a Japanese bank said.
One-month implied volatility for dollar/yen pulled back to around 12.2 percent JPYVOL from around 14 percent on Thursday.
Option triggers were seen below 85 yen, traders said.
Last November, the dollar hit a 14-year low against the yen.
The dollar fell for the fourth straight week against the yen, losing an additional 1.7 percent and bringing the total loss over the four weeks to 4.5 percent.
For the week, the euro gained 1.8 percent against the dollar, reversing a loss from the previous week. (Additional reporting by Wanfeng Zhou) (Reporting by Nick Olivari; Editing by Jan Paschal)