* Investors square positions ahead of U.S. data
* Friday's U.S. jobs report the key focus this week
* U.S. ISM index stronger than expected, boosts dollar
(Updates prices, adds quote)
By Gertrude Chavez-Dreyfuss
NEW YORK, Jan 4 The dollar fell on Monday as
investors locked in recent gains ahead of a key U.S. non-farm
payrolls report later this week which could firmly dictate the
currency's direction in the coming months.
Optimism about the prospects for a U.S. recovery has
supported the dollar recently but analysts said more evidence
of a strengthening economy was needed to justify further
"The dollar got a little boost in December and so on the
first day back from the holidays, investors are taking some of
their long dollar trades off the table ahead of the jobs data
this week," said John McCarthy, director of foreign exchange at
ING Capital Markets in New York.
A report showing the U.S. manufacturing sector expanded in
December for a fifth straight month briefly helped the dollar
trim its losses against the euro. [ID:nN04236157]. But with the
U.S. non-farm payrolls report looming on Friday, investors were
hesitant to push the dollar higher.
The dollar has moved mostly higher since figures early last
month showed the U.S. economy shed a far fewer-than-expected
11,000 jobs in November.
For December payrolls, the median forecast of analysts
polled by Reuters is for a decline of 20,000, or worse than
November's fall. However, the predictions ranged widely, from a
loss of 80,000 jobs to an increase of 50,000. [ECI/US]
"It remains to be seen whether this (Institute for Supply
management report) will help or hurt the dollar. Whether people
are speculating on interest rates or something else, the
initial reaction (was) dollar positive," said Dan Cook, senior
market analyst at IG Markets in Chicago.
Analysts also said an upbeat manufacturing survey out of
the euro zone underpinned the euro, while a renewed rally in
commodities, particularly crude oil, prompted buying of
commodity currencies such as the Australian and Canadian
In midday New York trading, the euro EUR= was up 0.7
percent against the dollar at $1.4428.
The single currency recovered from earlier falls, which
took it as low as $1.4258, testing a key chart support level
around $1.4229 where the 200-day moving average sits, and in
sight of December's low around $1.4218.
A euro zone purchasing managers' survey, which confirmed
the region's manufacturing sector expanded at its fastest rate
in 21 months in December [ID:nLDE6030JH], also helped the euro
against the dollar.
The ICE Futures' dollar index .DXY, a gauge of the
greenback's performance against six other major currencies,
fell 0.6 percent to 77.410.
Against the yen, the dollar traded down 0.6 percent at
92.46 yen JPY=, giving up gains which lifted it to a
four-month high of 93.21 yen. Traders said resistance was seen
ahead of its 200-day moving average around 93.60 yen.
Higher longer-dated U.S. Treasury yields have underpinned
the dollar, particularly against the yen in recent sessions,
traders said, with benchmark Treasury yields rising above 3.9
percent last Thursday, near last year's high of 3.95 percent.
The November jobs report, along with other above-forecast
U.S. data releases, prompted some economists to conclude
employment growth may have commenced in December, but this is
still the minority view.
Any sign of jobs growth raises expectations the U.S.
Federal Reserve will hike interest rates sooner rather than
later -- a move that would boost dollar-based assets.
Elsewhere in markets, commodity currencies rose on higher
oil and gold prices. The Australian dollar surged 1.8 percent
to US$0.9131 AUD=, while the Canadian dollar rallied, pushing
the greenback 1.3 percent lower at C$1.0376 CAD=.
(Additional reporting by Nick Olivari; Editing by Andrew