* Dollar holds most gains vs euro, currency basket
* Greenback supported after strong payrolls
* Analysts see consolidation ahead of Fed meeting
(Adds comments, updates prices; changes byline)
By Vivianne Rodrigues
NEW YORK, Aug 10 (Reuters) - The dollar gained for a third
straight day against a basket of currencies on Monday as
investors continued to trade on the strong U.S. jobs numbers
from Friday while awaiting the Federal Reserve's statement
after its policy meeting later this week.
Analysts said extending the dollar's latest gains may hinge
on the actions and words of the Fed, which will end a two-day
meeting on Wednesday.
Friday's jobs data showed a smaller-than-expected fall in
July U.S. payrolls, suggesting that employment may be turning
the corner after months of extreme weakness.
Investors were waiting to see if the dollar's latest move
was a sign of a breakdown of the recent correlation between the
U.S. currency and risk demand -- in which economic data
suggesting an improving global economy would batter a dollar
trading off an ensuing rise in risk appetite.
"After the positive non-farm payroll data last week, the
dollar gained across the board," said Dan Cook, a senior market
analyst at IG Markets Inc., in Chicago. "I will definitely be
watching this week to see if this is a continuing trend.
"If it looks as though the U.S. economy may recover faster
than the other major economies, we may reach a point where
dollar-based assets are more attractive," he added.
In afternoon trading in New York, the dollar was 0.4
percent higher at 79.305 <.DXY> against a basket of
currencies.
The euro <EUR=> was 0.5 percent lower at $1.4119 after
brushing off a surprisingly strong reading of euro-zone
sentiment on Monday. The Sentix index produced a -17 reading
for August, improving from -31.30 last month.
Against the yen, the dollar inched down 0.5 percent to
97.010 yen <JPY=> after rallying on Friday as high as 97.79 yen
on EBS, its strongest level in nearly eight weeks.
Some analysts said a post-payrolls rise in Treasury yields
helped to support the dollar as it increased the appeal of U.S.
debt for some investors, including those from overseas.
Sterling fell below $1.65 for the first time in a week,
extending losses that were triggered last week by the Bank of
England's surprise expansion of its quantitative easing
program. The pound fell as low as $1.6432 <GBP=>, according to
Reuters data. Declines accelerated after stop-losses were hit
below $1.66, traders said. [].
Analysts said some of Monday's trading was based on
technical levels.
"The dollar index is coming off a deeply oversold condition
and bounced off the bottom of the Bollinger Bands," said Andrew
Bekoff, chief investment strategist at Family Office Group in
New York. "We have seen that rally take us back to the 20-day
moving average at 78.79."
FED AWAITED
Analysts said that whether the dollar extends its latest
gains may hinge on the actions of the Fed.
The central bank is seen holding the fed funds rate at the
zero-0.25 percent level, and some analysts say it may try to
discourage speculation of a near-term rate rise after the
payrolls data boosted expectations of possible monetary
tightening [].
Markets are currently fully pricing a 25-basis-point rate
hike by the end of January <FEDWATCH>.
The Bank of Japan will announce its rate decision on
Tuesday, while Norway's central bank will end a policy meeting
on Wednesday.
(Additional reporting by Nick Olivari in New York; Editing by
Leslie Adler)
