* U.S. payrolls weigh on dollar, euro rallies 3rd day
* ECB bond buying, euro-zone data underpin euro
* Dollar/yen falls to 2-1/2 week low
(Updates prices, adds quotes, changes byline)
By Julie Haviv
NEW YORK, Dec 3 (Reuters) - The euro rallied sharply versus
the dollar on Friday after weak U.S. jobs data, gaining for a
third straight day, but the single currency should remain under
pressure next week as concerns about euro-zone debt problems
persist.
The dollar dropped across the board after Labor Department
data showed U.S. non-farm payrolls rose 39,000 last month, much
weaker than expectations for 140,000 new jobs. The unemployment
rate also increased to 9.8 percent. See [].
With a light U.S. economic data calendar next week, the
focus will likely shift to overseas events, such as Anglo
central bank meetings, Greg Anderson, G10 strategist at
Citigroup in New York.
"The strong rally in the euro we have seen in recent days
will likely fizzle out next week," he said. "This rally will
either peter out or outright pause as there are few drivers
left in the market."
Anderson sees the euro ending next week unchanged against
the dollar at around $1.34.
"The shorts were shaken out over the last two weeks and
over the last few days the longs got destroyed, so many people
will choose to just sit on their hands until the end of the
year," he said.
While the payrolls numbers further support the Federal
Reserve's quantitative easing, a dollar-negative factor,
analysts said the Fed would need a series of anemic data in
order to exhaust all of the $600 billion allocated for boosting
the economy.
"I don't think the big picture has changed much. Clearly,
the U.S. is dealing with very high unemployment. But there are
indications that the U.S. economy is gradually starting to pick
up again," said Ugo Lancioni, currency strategist and portfolio
manager at Neuberger Berman in London.
The firm has $180 billion in assets under management and
Lancioni helps oversee the company's fixed-income assets
totaling about $80 billion.
By contrast, the euro zone's peripheral countries remain
mired in a debt cesspool, which should keep the euro's
downtrend intact for now. European authorities may have bailed
out Ireland, but investors are still worried about the next
euro-area country to require assistance.
The euro, however, recovered on Friday, posting its best
three-day gain since May 2010, mainly due to the European
Central Bank's purchases of peripheral euro zone bonds. On the
week, the single euro zone currency was on track for a 0.7
percent rise.
KEY TECHNICAL LEVELS
In early afternoon New York trade, the euro rose about 1
percent at $1.3364 <EUR=EBS>, blowing past the key 100-day
moving average at $1.3325 and well above a 2-1/2 month low of
$1.2969 hit on Tuesday.
The next key level to watch is $1.3467, the 38.2 percent
retracement of the euro's move from its peak at $1.4283 in
early November to the $1.2969-trough.
In the options market, analysts reported that the negative
market sentiment on the euro has turned about two days ago and
are currently neutral.
David Tien, a director at Credit Suisse's Global
Algorithmic Strategy and Modeling group in New York, said the
extreme demand for bearish options structures on euro/dollar
which began in mid-November has significantly diminished as
"the extension of special ECB liquidity facilities appears to
have calmed the market in the near term."
On Thursday, the ECB extended non-standard provisions,
committing to provide unlimited one-week, one-month and
three-month funding for euro zone banks until at least April.
In line with the euro's recovery, other euro-zone linked
assets The CurrencyShares Euro Trust traded on the Chicago
Board Options Exchange rose 1.7 percent to $133.18 <FXE>. This
ETF holds euro on-demand deposits in euro-denominated bank
accounts.
Meanwhile, shares in the PowerShares DB US Dollar Index
Bullish Fund <UUP.P> fell 1.12 percent to $22.90.
[].
Against the yen, the dollar fell to 2-1/2-week lows at
82.53 <JPY=EBS>. It was last at 82.86, down 1.2 percent.
(Additional reporting by Gertrude Chavez-Dreyfuss and Doris
Frankel; Editing by Andrew Hay)
