FOREX-Dollar steadies, vulnerable to jobs weakness

SYDNEY, Nov 3 (Reuters) The dollar won a reprieve from recent weakness on Friday as a holiday in Japan drained liquidity and investors turned cautious ahead of U.S. jobs data.

The dollar has been losing ground for the past week or so as U.S. economic data took a decided turn for the worse. The one really resilient part of the economy has been the labour market so any weakness in payrolls could weigh hard on the currency.

''The run of soft data suggests the risks are to the downside for payrolls,'' said John Kyriakopoulos, a currency strategist at nabCapital. ''Employment is the one shoe that hasn't dropped yet in the whole slowdown story, so a poor result could have a big impact.'' Median forecasts are for a rise of 125,000 in payrolls but the latest derivatives auction on the data shows the market is betting on something nearer 102,000.

''A result under 100,000 would drag the dollar down,'' said Kyriakopoulos.

On Friday morning, the dollar was holding steady at $1.2777 per euro, having lost ground on Thursday after the presdient of the European Central Bank indicated it could raise interest rates next month.

Speaking after the ECB left its key rate unchanged at 3.25 percent on Thursday, President President Jean-Claude Trichet called for ''strong vigilance'' in maintaining price stability, a signal market analysts understand to mean a rate increase is in store.

Traders saw good support for the euro around $1.2740 while resistance lay in the $1.2785-1.2798 range.

The dollar was a shade firmer on the yen at 117.17 yen, having closed at 117.10 in New York.

The dollar had fallen as far as 116.68 yen on Thursday after after Japan's top financial diplomat, Hiroshi Watanabe, said there was no reason for the Japanese currency to weaken given that the economy was recovering.

The euro was steady at 149.72 yen.

Reuters SBA VP0550