* U.S. payrolls number broadly in line with expectations
* U.S. unemployment rate falls to 8.6 percent
* Euro reverses gains ahead of key event risks next week
By Gertrude Chavez-Dreyfuss
NEW YORK, Dec 2 The euro fell on Friday after
four straight days of gains, with investors hesitant to go very
bullish on the single currency ahead of a European Central Bank
meeting and a European Union summit next week.
The euro zone's common currency posted sharp gains after
data showed the U.S. unemployment rate fell to a 2-1/2 year low
in November and on reports the ECB may lend to weak euro zone
countries through the International Monetary Fund in hopes of
easing the the debt crisis.
But euro gains faded at midday amid various market rumors,
including one of a potential downgrade of Spain.
Investors were wary of buying the single currency
aggressively, given a strong rally this week and an ECB meeting
"It's a very rumor-driven market so there's a lot of
caution," said David Watt, senior currency strategist at RBC
Capital Markets in Toronto. "We also have an ECB meeting next
week, which may probably cut rates," he added, noting it is a
potential negative for the euro.
The ECB hinted Thursday it was ready to move more
aggressively to tackle the crisis if regional politicians agree
on much tighter budget controls, though it stopped short of
detailing what exact measures it would take.
The euro fell as low as $1.33630, blowing through stops at
$1.34150. It was last at $1.33848 on trading platform
EBS, down 0.6 percent on the day. It rose to a 10-day high of
$1.35505 immediately after the U.S. non-farm payrolls report.
The drop in the U.S. unemployment rate to 8.6 percent last
month stoked investors' appetite for risk, lifting the euro as
well, even though the headline figure of 120,000 new jobs
created was well short of the whisper number of 200,000 before
the report came out.
Despite the euro's drop, it was on pace to end the week
higher by 0.4 percent, its best weekly performance since late
Morgan Stanley said it was using the euro's gains this week
to establish a renewed bearish position on the single currency,
sticking to its view of more weakness in the currency in the
"We continue to look for the market to be disappointed by
the European Summit," Morgan Stanley analysts said in a note,
adding that they expected the euro to underperform commodity
currencies, particularly the Canadian and Australian dollars.
In other currencies, the dollar rose 0.5 percent against a
currency basket at 78.686. Against the yen, the dollar
edged up 0.2 percent to 77.860 yen .
"I guess with the superficial improvements in the U.S. jobs
report, that suggests a third round of quantitative easing by
the Federal Reserve is further away, which is a positive for
the dollar," said Brian Dolan, chief currency strategist at
Forex.com in Bedminster, New Jersey.
With the jobs data out of the way, markets were awaiting a
European Union summit set for Dec. 9 for signs of progress on
the debt crisis.
French and German leaders are due to meet on Dec. 5 to
outline joint proposals to be discussed at the EU meeting,
which is viewed as yet another make-or-break meeting for the
12-year-old currency bloc.