* Euro hovers near 14-month low vs dollar
* ECB cuts rates, to buy ABS and covered bonds
* Dollar hits 6-year high vs yen, dollar index hits 14-month high
* U.S. nonfarm payrolls data next major focus (Adds comments, updates prices)
By Ian Chua and Masayuki Kitano
SYDNEY/SINGAPORE, Sept 5 (Reuters) - The euro languished near a 14-month low versus the dollar on Friday, struggling to regain its footing after the European Central Bank delivered a fresh round of stimulus and promised even more if needed.
The common European currency slipped 0.1 percent to $1.2935 . On Thursday, it had tumbled 1.6 percent, its biggest one-day drop in nearly three years versus the dollar, and set a 14-month low of $1.2920.
The ECB cut interest rates to record lows on Thursday and announced plans to buy asset-backed securities (ABS) and covered bonds in October.
“While President Draghi declined to provide a size estimate for the asset purchase programme, he indicated that ... the ECB aimed to increase its balance sheet back towards levels seen in 2012, which would imply roughly 1 trillion euros, or a 50 percent increase, from current levels,” analysts at BNP Paribas wrote in a note to clients.
Euro zone equities and sovereign bonds all rallied, pushing the two-year yields in Austria, Germany, the Netherlands and France into negative territory.
ECB Governing Council member Ewald Nowotny said in an interview with Austrian broadcaster ORF that the ECB cut interest rates on Thursday in part to help weaken the euro.
Nowotny added that a euro/dollar rate around $1.30 or slightly lower was “going in the right direction” but declined to say where he would like to see the euro.
Nowotny’s comments seem to highlight the fact that the ECB is paying more attention to the euro’s exchange rate as an avenue for more policy easing, said Mitul Kotecha, head of FX strategy, Asia-Pacific, for Barclays in Singapore.
“The fact that they’ve got limited room now on interest rates, where they will find more scope in terms of overall policy easing is via a weaker exchange rate,” Kotecha said.
“I think it’s a case where they’re engineering policy to ensure that the currency is weaker. We think there’s certainly plenty more scope for weakness in the euro,” he added.
The drop in the euro helped give a boost to the dollar and its index set a 14-month high of 83.943 earlier on Friday. It last stood at 83.856, steady on the day.
Against the yen, the dollar touched a high of 105.71 yen , its highest level in nearly six years. The dollar last traded at 105.32 yen, up 0.1 percent from late U.S. trade on Thursday.
Hopes for a highly anticipated asset reallocation by Japan’s Government Pension Investment Fund (GPIF) continued to weigh on the yen, said Bart Wakabayashi, head of foreign exchange for State Street Global Markets in Tokyo.
“It’s not just a dollar-buying market. There’s a solid story on the other side too, and that makes it easier to buy the dollar against the yen,” Wakabayashi said.
U.S. data on Thursday provided fresh evidence that the U.S. economy is on track for sturdy growth in the third quarter. U.S. companies hired workers at a steady clip in August and service sector activity accelerated to a 6-1/2-year high.
Investors are now keenly waiting for the latest data on the U.S. labour market due later in the day. Analysts expect the pace of job creation to have picked up slightly in August, with a rise of 225,000 jobs on nonfarm payrolls. (Editing by Shri Navaratnam)