* Dollar falls broadly on year-end position adjustment
* Trade quiet, causing exaggerated movements
* U.S. payrolls next week's focus for FX markets
(Updates prices; changes byline, dateline;pvs SYDNEY/SINGAPORE)
By Jessica Mortimer
LONDON, Dec 31 (Reuters) - The dollar fell broadly on
Thursday on year-end position adjustment in thin, illiquid trade
which prompted exaggerated price movements.
Trade was extremely light, with Tokyo and several European
countries on holiday and many banks on skeleton staff ahead of
the New Year holidays.
The euro jumped well over a cent against the dollar in early
London trade, with traders attributing the move to Asian central
bank dollar selling as well as year-end model trades.
The move triggered stops in other currencies against the
dollar, which fell across the board, with the Australian and New
Zealand dollars the main beneficiaries.
"We're probably seeing some sort of rebalancing. The dollar
has had a strong month and people are just taking profits," said
Geoffrey Yu, currency strategist at UBS in London.
At 0918 GMT, the dollar index <.DXY> was down 0.5 percent to
77.508, a big turnaround from the previous session when it rose
as high as 78.218.
The dollar index has risen around 3.5 percent so far this
month but is down around 4 percent over the year.
The euro <EUR=> was up 0.6 percent at $1.4419, taking it
well above its December low of $1.4219 although this still
leaves it down nearly 4 percent over the month.
"All the models are pointing to a good dollar sell today," a
London-based trader said.
Over the year, the euro was up around 3 percent, although
that gain pales compared to the Australian and New Zealand
dollars -- easily the best performers among the major currencies
-- which have risen around 28 and 25 percent respectively.
The two currencies gained strongly on Thursday, with the
Australian dollar <AUD=D4> up 0.5 percent at $0.8988 and the New
Zealand dollar <NZD=D4> up 0.7 percent at $0.7266.
Both currencies were hit hard by the global credit crunch in
2008 but recovered smartly this year, benefiting from hefty
rises in commodity prices and as the Chinese economy continued
to perform well.
Elsewhere, the dollar fell 0.2 percent against the yen
<JPY=> to 92.23 yen. It was up nearly 7 percent over December,
on track for its best monthly performance since February.
The Japanese currency was otherwise soft, partly as a yield
play and partly on concerns over Japan's stretched fiscal
position.
The New Zealand dollar continued to attract risk seekers,
extending its rally against the yen for a fourth session and
driving the cross to 67.16 yen <NZDJPY=R>, its highest since
end-October.
PONDERING PAYROLLS
There was little in the way of news to digest on Thursday.
Uncertainty remains over whether the dollar will continue
its December rally into the new year, though next week's U.S.
payrolls data could decide the issue.
"It's going to be a hugely important number," said a trader
at an Australian bank in Sydney. "Anything above forecast could
see the euro finally break down through $1.4200 toward $1.4000.
"A weak result would be a real dampener after the run of
upbeat figures we've seen. The market would have to rethink the
Fed timing again, and that could see the euro back up at
$1.4700."
(Additional reporting by Wayne Cole in Sydney, editing by Mike
Peacock)
