* Markets thinly traded before ECB, BOE meetings and US payrolls
* Political instability in Portugal weighs on euro, helps yen
* AUD jumps after RBA comments, though downtrend seen still in place
By Hideyuki Sano
TOKYO, July 4 (Reuters) - The dollar held near a five-week high against a basket of currencies on Thursday, steadying as investors looked to a raft of potentially market-moving events, including the European Central Bank’s policy review and U.S. payrolls report.
Political instability in Portugal has weighed on the euro, sparking a sharp fall in euro/yen, which in turn lifted the Japanese currency across the board, though the move appears to have run its course for now.
The dollar index edged up slightly to 83.285 , having hit a five-week high of 83.717 on Wednesday before investors trimmed back long positions heading into a U.S. holiday on Thursday.
The euro stood flat on the day at $1.3002, after falling as low as $1.2923 at one point on Wednesday, its weakest since late May, hit by jump in Portuguese bond yields.
Portugal’s 10-year bond yield shot above 8 percent and its stock market slumped 5 percent on fears a snap election could derail Lisbon’s exit next year from a bailout by the European Union and International Monetary Fund.
“As long as the crisis is contained within Portugal, the impact on broader markets will be limited. But if there is contagion to Italy and Spain, then there would be big trouble as Germany is unlikely to offer any strong support ahead of its election in September,” said Minori Uchida, chief FX analyst at the Bank of Tokyo-Mitsubishi UFJ.
Overall, caution ruled given looming central bank meetings in the euro zone and UK and the market so hyper sensitive to the outlook for Federal Reserve policy.
No policy change is expected from the European Central Bank later on Thursday but a jump in yields in Portugal, and other periphery markets, should keep President Mario Draghi sounding dovish.
“Draghi is likely to emphasize that the growth outlook is still subject to downside risk, that the ECB is ready to act and that there are still tools in the toolbox,” said JPMorgan analyst Greg Fuzesi in a note.
“Draghi will also say that the exit from the current policy stance is ”very far away“, ”very distant“ or some variant of this.”
The Bank of England also has its first meeting under new Governor Mark Carney, who took over just this week. There has been some speculation he would break with convention and release a statement even if the bank takes no action.
A swing higher in Treasury yields offered some support to the dollar while U.S. data was too mixed to offer guidance on when the Federal Reserve might start to taper its asset buying.
More important, of course, will be the payrolls report on Friday and there was much talk in the market about the tendency of the series to disappoint in June.
Over the last sixteen years the report has come in under expectations 75 percent of the time with an average miss of 70,000. In addition, four of the last five June releases have fallen short of expectations.
Forecasts for employment range from 125,000 to as high as 220,000, with a median at 165,000.
The dollar also eased slightly against the yen, which benefited as investors sought shelter in the safe-haven Japanese currency overnight from concerns in Europe.
Also helping the yen were events in Egypt, which are making some investors risk-averse, as armed forces overthrew President Mohamed Mursi.
The dollar fetched 99.83 yen, almost unchanged from late U.S. levels and off five-week high of 100.86 yen hit on Wednesday.
The Australian dollar jumped after Reserve Bank of Australia deputy governor Philip Lowe said the market misinterpreted comments by the bank’s governor the previous day.
RBA chief Glenn Stevens had surprised traders by saying the RBA board “deliberated for a very long time” before its decision to keep rates on hold earlier this week, sparking speculation the bank was much more close to cutting rates than markets had thought.
The Aussie rose 0.4 percent to $0.9117, rebounding from a fresh three-year trough of $0.9036 carved out the previous day on speculation that interest rates could be cut next month.