* Dollar recovers vs yen, rises above 86 yen
* ADP private jobs, ISM services data help dollar
* Markets still nervous about signs of slower U.S. growth
* Speculation lingers about Fed monetary policy moves
(Updates prices, adds dollar moves vs Swiss, UK currencies)
By Steven C. Johnson
NEW YORK, Aug 4 (Reuters) - The dollar rebounded from an
eight-month low against the yen on Wednesday and rose against
the euro as encouraging U.S. employment and service sector data
prompted traders to unwind bets against the U.S. currency.
Data showing the economy added 42,000 jobs was welcome, but
traders said it would take far more good news to reverse the
prevailing bias against the greenback, which has shed some 6
percent against major currencies since July. For more see
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"The market is still short the dollar, so you could see
some covering between now and the end of the week, but this
would be for the short term," said Hidetoshi Yanagihara, senior
currency trader at Mizuho Corporate Bank in New York. "It's
obvious the pace of U.S. growth is slowing and people are
waiting to sell the dollar at better levels."
The dollar rose 0.6 percent to 86.23 yen <JPY=> after
falling to 85.33, its lowest since November. A move below 84.81
yen would mark a 15-year low.
The euro fell 0.5 percent to $1.3160 <EUR=>, off Tuesday's
three-month high of $1.3261. Data showing the U.S. services
sector grew more than expected in July also helped the dollar.
The dollar rose 1.1 percent to 1.0505 Swiss francs <CHF=> and
sterling fell 0.4 percent to $1.5885 <GBP=D4>.
"The U.S. dollar is finding its legs this morning on the
heels of better-than-expected labor market numbers," said Kathy
Lien, director of research at GFT Forex in New York.
However, she noted that the dollar remains perilously close
to that 15-year trough against the yen below 85 and said
markets are still worried that recent signs of weaker U.S.
growth could prompt the Federal Reserve to embrace more
monetary policy easing.
Those fears have been driving U.S. short-dated Treasury
yields lower in recent days, and that has undermined the appeal
of dollars for global investors.
Technical factors are still flashing some warning signals.
Strategists point to an index of the dollar against six major
currencies <.DXY>, which has closed for two straight days
beneath its 200-day moving average before rising 0.6 percent on
Wednesday.
Lien said a strong showing from the government's more
comprehensive payrolls report on Friday could cause "yields to
finally stop falling, which is a prerequisite for the U.S.
dollar to bottom."
Economists polled by Reuters are looking for Friday's data
to show an overall decline of 65,000 jobs in July but a 90,000
gain in private sector employment.
Yanagihara said, however, that jobs are a lagging indicator
and signs of sluggish growth will keep investors cautious.
Speculation that the Fed -- the U.S. central bank -- could
revive a program to buy Treasury and mortgage debt to boost
growth is also likely to cap dollar gains, analysts said.
"We see further dollar weakness ahead, with the Fed making
it clear its priority is to support growth," said Ulrich
Leuchtmann, currency analyst at Commerzbank in Europe.
(Additional reporting by Nick Olivari in New York and Neal
Armstrong in London; Editing by Andrew Hay)
