* Dollar reverses earlier gains on caution before US data
* Friday's U.S. jobs report is the key focus this week
* Dollar cuts gains after earlier hitting 4 mth high vs yen
(Updates prices)
By Jessica Mortimer
LONDON, Jan 4 (Reuters) - The dollar fell on Monday,
reversing earlier gains on caution ahead of upcoming U.S. data,
which left investors wary of pushing the currency up further
after it earlier hit a four-month high versus the yen.
Optimism about the prospects for a U.S. recovery have
supported the dollar recently but analysts said more evidence of
a strengthening economy was needed to justify further gains.
Investors were jittery in a busy week for U.S. data that
begins on Monday with the Institute for Supply Management's
December manufacturing index, due at 1500 GMT, and culminates in
closely-watched monthly jobs data on Friday. <ECONUS>
"People are coming back after the new year, but the market
has been slow to settle back in and there's a reluctance to
chase dollar strength in a week which includes U.S. payrolls
data," said Daragh Maher, deputy head of FX strategy at Calyon.
By 1243 GMT, the euro <EUR=> was up 0.5 percent against the
dollar at $1.4396.
The single currency recovered from earlier falls, which took
it as low as $1.4257, testing a key chart support level around
$1.4229 where the 200-day moving average sits, and in sight of
December's low around $1.4218.
A euro zone purchasing managers' survey which confirmed the
region's manufacturing sector expanded at its fastest rate in 21
months [] also helped the euro against the dollar.
The dollar index <.DXY>, a gauge of the greenback's
performance against six other major currencies, fell 0.4 percent
to 77.554.
Against the yen, the dollar was trading down 0.2 percent at
92.82 yen <JPY=> cutting earlier gains which lifted it to a
four-month high of 93.22 yen on trading platform EBS. Traders
said resistance was seen ahead of its 200-day moving average
around 93.60 yen.
Higher longer-dated U.S. Treasury yields had underpinned the
dollar, particularly against the yen, traders said, with
benchmark Treasury yields rising above 3.9 percent on Thursday,
in sight of last year's high around 4 percent. [] <US10YT=RR>
PAYROLLS AWAITED
The dollar has moved mostly higher since figures early last
month showed the U.S. economy shed a much lower-than-expected
11,000 jobs in November.
Along with other above-forecast U.S. data releases, this
prompted some economists to conclude that employment growth may
have commenced in December, but this is still the minority view.
The median forecast of analysts polled by Reuters is for
payrolls to have fallen by 20,000 in December, which would be
worse than November's decline of 11,000 jobs. However, the
predictions ranged widely, from a loss of 80,000 jobs to an
increase of 50,000. []
"Following the surprisingly positive November labour market
report, which led to the recovery of the dollar in December,
further key data will now have to confirm the market view that
the U.S. economy is experiencing a sustainable recovery,"
Commerzbank analysts said in a note to clients.
"In view of the fact that almost all dollar short positions
have been squared since early December and that in the mean-time
investors have entered into euro shorts ... further dollar gains
are likely to become more difficult if the U.S. economic data
does not meet the expectations of the markets," they said.
(Reporting by Jessica Mortimer; Editing by Ron Askew)
