* Investors look to U.S. payrolls data
* Smooth Spanish auction helps euro in earlier trade
* Traders cautious ahead of Friday's U.S. jobs data
* Some suggest dollar selling running out of steam
(Recasts, updates prices, adds comment, detail)
By Steven C. Johnson
NEW YORK, Aug 5 (Reuters) - The dollar was little changed
against the euro on Thursday, as investors squared positions
ahead of a U.S. payrolls report that markets hope will offer
fresh insight on the state of the U.S. economy.
Strong German industrial data and signs that Spain and
Greece were making progress in trimming budget deficits earlier
lifted the euro, as did data showing U.S. initial jobless
claims unexpectedly rose in the latest week.
But after selling the dollar aggressively earlier this
week, investors were unwinding some bets against it Thursday in
case Friday's data shows a surprisingly strong jobs gain.
Analysts polled by Reuters expect the United States lost
65,000 jobs in July but added 90,000 in the private sector. An
independent report from ADP Employment Services earlier this
week said the private sector added 43,000 jobs in July.
"Trading has been very choppy, which is typical on the day
before U.S. payrolls, and after the ADP number, a lot of people
are revising up their forecasts for tomorrow," said Steven
Butler, head of currency trading at Scotia Capital in Toronto.
The euro was flat at $1.3150 <EUR=>. Earlier it rose to
$1.3234 after data showed a surprise 19,000 rise in the number
of Americans filing for initial jobless benefits last week.
A strong debt auction in Spain and a vote of confidence
from the International Monetary fund in Greece's efforts to cut
the deficit also boosted euro buying during European trade. For
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Both countries were at the forefront of a euro zone debt
crisis that drove the currency below $1.19 in June, its worst
showing since 2006
The dollar fell 0.5 percent to 85.85 yen <JPY=>, just over
a yen off a 15-year low, while sterling slipped 0.2 percent to
$1.5847 <GBP=D4> after hitting a six-month high above $1.59
this week.
U.S. GROWTH FEARS OVERDONE?
Recent signs of slower U.S. growth have hobbled the dollar;
since July, it has lost about 6 percent against a basket of
major currencies. It fell this week along with short-dated U.S.
Treasury yields amid speculation the Federal Reserve could
revive Treasury and mortgage bond purchase to boost growth.
But Butler said it appears traders "overreacted," adding
that the Fed "has been pretty clear that it's done acting for
now."
Added Brian Dolan, chief strategist at Forex.com in
Bedminster, New Jersey: "the market increasingly thinks the Fed
probably won't do anything drastic after all, because while the
U.S. data has been weak, it's not dire enough to panic."
If Friday's payroll data meets or exceeds expectations, he
said the dollar will likely rally to cap off the week.
Butler said if the euro closes below the $1.3125 area,
which marks the 38.2 percent retracement of the euro's
November-to-June decline, "you'll see anyone who bought
short-term Treasuries looking for the exit, and that means the
euro heads back toward $1.30 and sterling toward $1.55."
Currency strategists at Standard Chartered said in a note
to clients Thursday that investors should use current dollar
weakness "to renew underweight positions in European currencies
such as the euro and sterling," noting that September debt
rollovers and the start of Britain's fiscal tightening will
hurt those two currencies.
(Additional reporting by Nick Olivari in New York; editing
by Paul Simao)
