* U.S. nonfarm payrolls report showed pickup in job creation * Speculators cut long-dollar bets in past week * Fed's Plosser says central bank should end bond-buying program * Dollar on track for worst weekly loss vs yen in nearly three years By Julie Haviv NEW YORK, June 7 (Reuters) - The dollar on Friday recouped sharp losses posted the previous session after a government report showed reasonably healthy U.S. job creation in May, renewing expectations the Federal Reserve might scale back its massive asset purchases later this year. Weak labor market data earlier this week had weighed on the dollar, with most investors expecting a downbeat figure going into the nonfarm payrolls report, but U.S. employers increased their hiring a bit more than expected last month, showing resilience in the sector. The Labor Department's report showed that the U.S. economy created 175,000 jobs in May, with the unemployment rate edging up to 7.6 percent last month from 7.5 percent in April. Analysts were also heartened by the separate household survey, which showed higher employment in May. Investors are increasingly coming to terms with the idea that the Fed this year would begin to reduce the current third round of its quantitative easing program to support the economy, dubbed QE3, perhaps as soon as September. The program - $85 billion in monthly purchases of Treasuries and mortgage-backed securities - is widely seen as negative for the dollar as it is considered tantamount to printing money. Currency speculators trimmed bets in favor of the U.S. dollar for the first time in five weeks in the latest week, according to data released on Friday by the Commodity Futures Trading Commission. Against the Japanese yen, meanwhile, the dollar rebounded to hit a session highs at 97.75 yen, recovering from a two-month low earlier in the day. Just before the U.S. jobs report, the dollar was down 1.6 percent. It was last trading up 0.5 percent at 97.38. For the week, the dollar was down 3.1 percent versus the yen, its worst weekly loss since July 2009. On Thursday, the greenback had suffered its biggest one-day drop against the yen in three years. Vassili Serebriakov, foreign exchange strategist at BNP Paribas in New York, said he expects dollar/yen to reach 108 by year end. "Over-stretched long dollar positions have been going through a squeeze over the past week. We expect this to continue in the near term, before the dollar can resume its uptrend," he said. "We do not expect any QE 'tapering' announcement until December, but managing expectations will remain a key task for the Fed considering the recent volatility in rates," he said. The latest U.S. jobs report showed that government spending cuts have so far not been as damaging as some feared, Philadelphia Fed President Charles Plosser told Reuters on Friday, adding it only entrenched his opinion that the central bank should reduce its bond buying "now." Traders of short-term U.S. interest rate futures still expect the Fed to hold rates near zero until early 2015. "We do not see the (jobs) number as providing clarity on the state of improvement in labor markets and the potential for a reduction in the pace of asset purchases by the Fed," said Michael Gapen, senior U.S. economist at Barclays Capital in New York. He added that the improvement in the labor market remained moderate, and if anything, the trend suggested that the U.S. economy was slowing in the second quarter. "In our view, this means that the Fed is unlikely to take a decision to taper purchases at its June meeting, preferring rather to see several more employment reports before the September FOMC meeting," Gapen said. In late afternoon trading, the euro was down 0.2 percent at $1.3218. It hit a peak on Thursday at $1.3306, its highest in more than three months, after European Central Bank President Mario Draghi gave no hints that further monetary easing was imminent for the euro zone. The euro, however, was poised to end the week on a high note with gains of about 1.7 percent, its best weekly showing since January. The greenback also posted gains against the Swiss franc and sterling as well as the Australian and New Zealand dollars. But the U.S. dollar fell against the Canadian currency, with the loonie benefiting from a report that showed Canada added a robust 95,000 jobs in May, an 11-year high. By late afternoon, the U.S. dollar was down 0.5 percent at C$1.0208, according to Reuters data.