Dollar extends gains on solid US jobs data

TOKYO, Dec 11 (Reuters) The dollar extended gains against the euro on Monday after solid U.S. jobs data late last week helped alleviate some worries that a weaker economy will prompt the Federal Reserve to trim interest rates early next year.

The monthly payrolls report showed companies added 132,000 workers in November, outpacing forecasts for a 110,000 gain and showing that the troubles in the construction and manufacturing sectors remain well contained for now.

The data prompted investors to rethink expectations the Fed will cut rates as much as three times next year to help stave off a deeper economic slowdown, which would undermine the dollar's yield advantage.

''The November employment report was a tale of two labour markets. The goods sector continues to shed jobs while the service sector continues to generate jobs,'' said Sue Trinh, senior currency strategist at RBC Capital Markets in Sydney, in a note to clients.

Other factors also helped the U.S. currency, including rumours of the European Central Bank checking rates and a report from Japan's Jiji news agency that the chances of the Bank of Japan raising rates at next week's policy meeting have decreased.

In early Asia trade, the euro slipped 0.25 percent to $1.3170 from near $1.3200 late in New York on Friday, sliding further away from a 20-month high of $1.3370 struck last week.

The single currency also fell 0.25 percent to 153.30 yen.

The dollar edged up to 116.40 yen, off a four-month low of 114.43 yen also touched last week.

Fed officials gather for their last meeting of the year on Tuesday and are expected to keep the language in their post-meeting statement indicating that interest rates are more likely to be raised further than be cut.

Investors are looking ahead to the BOJ's quarterly tankan survey of business sentiment on Friday as expectations have mounted that a strong report may prompt the central bank to lift rates to 0.5 percent at a two-day policy meeting ending next Tuesday.

Money market players see a roughly 70 percent chance of the BOJ raising rates this month after a few policy makers indicated the need for higher rates last week, despite weaker-than-expected data on machinery orders and third-quarter growth last week.

REUTERS PDS PM0728