FOREX-Dollar falls broadly as euro recoups losses

* Dollar falls broadly as euro recoups sharp losses

* Euro still seen vulnerable with pressure staying on ECB

* Euro zone PPI falls more than expected; German jobless up

* U.S. ADP report in focus ahead of non-farm payrolls

(Adds quotes, updates prices, changes byline)

By Tamawa Desai

LONDON, Jan 7 (Reuters) - The dollar fell broadly on Wednesday, reversing sharp gains against the euro earlier in the week as concerns over the U.S. economy and expectations for continued low U.S. interest rates overrode earlier optimism.

But the euro remained vulnerable as data showed a rapidly weakening economy and easing inflation, which raised prospects for the European Central Bank to cut rates again next week.

The dollar pushed back from one-month highs against the euro and yen on profit-taking, including central bank buying of euros at lower levels for reserve-management purposes and interest from funds.

"We've seen a substantial move in the past few days, so players are taking profits," said Neil Mellor, currency strategist at Bank of New York Mellon.

"It's hard to predict the trend based on price moves from the past few days as the market is still illiquid," he added.

Data on Wednesday showed euro zone producer prices fell sharply in November, logging a record monthly decline on a sharp drop in energy costs. [ID:nL7430653]

That came on the heels of data the previous day showing a smaller-than-expected rise in consumer prices, raising expectations that the European Central Bank will be ready to ease monetary policy, not only at its meeting next week, but also going forward.

Separate data showed a bigger-than-expected rise in German unemployment [ID:nBAE001521].

"Given widespread evidence of sharply diminishing inflationary pressures and deepening euro zone recession, we believe there is a compelling case for the ECB to cut interest rates appreciably further," said Howard Archer, economist at IHS Global Insight.