* Dollar rebounds to around 88 yen after falling below 87
* Aussie rises vs yen after mining tax diluted
* Euro holds gains after bear squeeze, before U.S. jobs data
By Charlotte Cooper
TOKYO, July 2 (Reuters) - The dollar was on the defensive
against the euro on Friday, holding near five-week lows, after a
big short squeeze in the single currency ahead of U.S. jobs
data, while the yen lost ground as the squeeze spilled into
Asian trade.
The dollar has fast lost favour this week, undermined by
concerns about the strength of the U.S. economy, and it plunged
on Thursday, hitting its lowest this year against the yen, as
short-covering by euro bears unleashed a chain reaction.
The dollar index <.DXY>, a gauge of its performance against
six other major currencies, hovered just above a two-month low
after it shed 1.6 percent on Thursday.
The index was steady at 84.69, having broken through its
55-day moving average at around 85.
The greenback staggered up against the yen after hitting a
seven-month low of 86.96 yen <JPY=> in the fray.
But it faced selling at 88 yen, with the market on alert for
any comments from Japanese authorities which might signal
concern about yen strength.
"This is broad-based dollar sales. It's not risk aversion --
rather dollar aversion," said Masafumi Yamamoto, chief FX
strategist Japan at Barclays in Tokyo.
The Australian dollar <AUD=D4> initially rose versus the
greenback and climbed against the low-yielding Japanese currency
after Australia's government announced a watered-down version of
a proposed mining tax, easing concerns it could hurt business
investment and share prices. []
U.S. JOBS DATA LOOMS
The U.S. Labor department releases its June employment
report at 1230 GMT. Economists are forecasting a loss of 110,000
jobs in June compared with an increase of 431,00 jobs in May.
[].
A negative surprise could weigh further on the dollar, after
soft economic numbers in recent sessions sent investors worried
about a double-dip recession into safe-haven U.S. Treasury bonds
and pushed yields down.
Dealers said Japanese importer buying of the dollar ahead of
the three-day weekend in the U.S. helped lift it 0.4 percent to
87.98 yen <JPY=>, but its drop through 87.95 yen on Thursday,
when options triggers sent it down, meant it had broken below
the 95-88 yen range held so far this year.
One dealer said more options triggers lay below 85 yen. The
dollar fell to a 14-year low of 84.82 last November.
The euro made its big move against the dollar on Thursday,
surging more than 2 percent to $1.2541 in its biggest one-day
advance since mid-March last year, and on Friday it was holding
around $1.2500 <EUR=>.
Concerns about euro zone debt, the banking sector and
liquidity problems had led investors to short the euro and
growth-linked currencies and pile into safe-haven currencies
like the Swiss franc <CHF=> and the Japanese yen <JPY=> in
recent sessions.
But some of those concerns eased after Spain successfully
sold 3.5 billion euros of five-year bonds, prompting many to
unwind those short positions. Thinning liquidity ahead of the
long Independence Day weekend in the United States also
exacerbated the moves.
"Market players are putting off euro selling on the back of
funding concerns in Europe for now," said Shuichi Kanehira, head
of forex spot trading at Mizuho Corporate Bank.
Traders said the euro/dollar was struggling to move higher
ahead of the U.S. employment data.
Charts indicate the euro faces near-term resistance at
$1.2570, a 38.2 percent retracement of its decline from $1.3692
in April to $1.1876 in early June. Resistance could also come in
at its 55-day moving average around $1.2550.
It was steady at 1.3266 Swiss francs <EURCHF=R> after
hitting a record low 1.3073 on Thursday, and its gains on Friday
came instead against the yen, where it rose 0.2 percent to
109.92 yen.
The yen also slipped to the Australian and New Zealand
dollars, with the Aussie up 0.2 percent at 74.30 yen <AUDJPY=R>
and the kiwi gaining 0.6 percent to 60.78 yen <NZDJPY=R> as
short-term speculators covered short positions.
By later in the Asian session the Aussie had given up early
gains against the dollar made after the mining tax news, with
traders saying activity had fallen away as the jobs data neared.
It slid 0.4 percent to $0.8443 <AUD=D4> after climbing as
far as $0.8510.
Tony Morriss, a senior FX strategist at ANZ, said the tax
news was positive for the Aussie particularly in the short run
as it removed some uncertainty weighing on the currency.
"But we have to see how it holds up, given the U.S. payrolls
coming up and a long weekend in the U.S.," Morriss said.
(Additional reporting by Anirban Nag and Reuters FX analyst
Krishna Kumar in Sydney and Rika Otsuka and Hideyuki Sano in
Tokyo; Editing by Joseph Radford)
