* Dollar recovers vs yen, rises above 86 yen
* ADP private jobs, ISM services data help dollar
* Speculation lingers about Fed monetary policy moves
* Moves in dollar index still point to more weakness
(Adds comments, technical details on dollar index; changes
byline)
By Vivianne Rodrigues
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.
A report 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 yen, its lowest since November. A move below
84.81 yen would mark a 15-year low, according to Reuters data.
The euro fell 0.6 percent to $1.3142 <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 U.S. currency rose 1.4 percent to 1.0540 Swiss francs
<CHF=> and sterling fell 0.5 percent to $1.5865 <GBP=D4>.
Kathy Lien, director of research at GFT Forex in New York,
said the reports this morning provided investors with a good
incentive to buy back some dollar. However, she added markets
are still worried recent signs of weaker U.S. growth could
prompt the Federal Reserve to embrace more monetary policy
easing.
Those fears have driven U.S. short-dated Treasury yields
lower in recent days. That has undermined the appeal of dollars
for global investors.
Technical factors are still flashing some warning signals
for the greenback. An index which measures the value of the
dollar against six major currencies <.DXY>, has closed for two
straight days beneath its 200-day moving average before rising
0.6 percent on Wednesday.
Further losses in the index are still likely and a firm
breach of the supports at 80.40 and 79.92, particularly on a
weekly close basis, would suggest a more medium-term downtrend
for the dollar to below 75, according to Reuters and Citibank
data.
The 80.40-79.2 target area is the convergence of 55-200
week moving averages and horizontal supports for the index.
ALL EYES ON PAYROLLS
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.
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 Steven C. Johnson, Nick Olivari in
New York and Neal Armstrong in London; Editing by Andrew Hay)
