* Dollar index up quarter of a percent
* Trade thinned by New Year holiday
* Focus on non-farm payrolls later in week
* Istanbul attack has limited market impact
* Graphic: World FX rates in 2016 tmsnrt.rs/2egbfVh
By Jemima Kelly
LONDON, Jan 2 (Reuters) - The dollar recovered from a two-week low against a basket of six major currencies on Monday, though trade was thin due to many markets being closed for the New Year holiday.
The greenback soared to 14-year highs in December, boosted by market expectations that the U.S. Federal Reserve will hike rates as many as three times this year, and that President-elect Donald Trump will stoke growth and inflation with a programme of fiscal expansion.
The dollar finished the year with an almost 4 percent annual rise, the fourth consecutive year of gains.
But the index that measures the currency against six major rivals lost more than 1 percent during the last three days of last week, its weakness exacerbated on Friday during a flash surge for the euro in low volumes of trading in Asia.
The single currency jumped two full cents to as high as $1.07, before quickly retreating, prompting analysts to draw parallels with a “flash crash” in October that briefly knocked almost 10 percent off the value of Britain’s pound.
The euro edged down on Monday to $1.0513, while the dollar index climbed quarter of a percent to 102.43, close to the 14-year peak of 103.65 it touched on Dec. 30.
“In the last days of 2016 we saw the dollar retreat somewhat, and there might be some sense of a correction from Europe this morning. I don’t see any fundamental drivers for the moves,” said Commerzbank currency strategist Esther Reichelt in Frankfurt.
Data released on Friday showed speculators once again taking a bullish stance on the dollar, increasing their bets in the week up to last Tuesday after cutting their long positions for the first time since October in the previous week.
The main data focus for the week will be Friday’s U.S. non-farm payrolls report.
“This week’s NFP figure is likely to confirm (the) assumption...that if the FOMC (Federal Open Market Committee) hopes to get at least two hikes in during the year, one of them should be out of the way by the middle of the year,” wrote FXPrimus’s head of investment research, Marshall Gittler.
A gun attack in Istanbul that killed 39 people was seen having little impact on the currency market, with the Japanese yen - traditionally used as a safe haven - falling against the dollar and the Turkish lira slipping only 0.3 percent .
“The market is unfortunately getting increasingly used to such events - it barely reacts to them anymore,” said Commerzbank’s Reichelt. “When we had that attack in Berlin recently, there was barely any move - the euro moved a few pips.
Sterling edged up 0.2 percent to $1.2347, close to a 10-day high of $1.2388 hit on Friday.
For Reuters new Live Markets blog on European and UK stock markets see reuters://realtime/verb=Open/url=http://emea1.apps.cp.extranet.thomsonreuters.biz/cms/?pageId=livemarkets (editing by John Stonestreet)