Europe shares hit 6-1/2 yr peak, dollar up

LONDON, May 4 (Reuters) European shares hit a 6-1/2 year peak on Friday, following Asia's continuing rally, while the dollar rose to a 2-1/2 week high after upbeat U.S. data brightened sentiment ahead of a key employment report.

Oil was slightly higher, recouping losses made after concerns eased about disruptions to Nigeria's production, while gold was little changed, staying below $700 an ounce.

All eyes were on U.S. April payrolls data at 1230 GMT, which have been expected to show the U.S. economy generated 100,000 jobs. But a closely-watched derivatives auction showed investors may now be looking for a lower number, which could boost expectations of an interest rate cut this year.

Upbeat corporate results and takeover activity have boosted investor risk appetite, prompting buying of equities and higher-yielding currencies in recent weeks.

''Corporate earnings should remain strong due to structural trends like liberalisation and globalisation and due to a strong business cycle,'' said Etienne de Calatay, strategist at Bank Degroof in Brussels.

The FTSEurofirst 300 index of top European shares <.fteu3> was up slightly to hit its highest level since December 2000.

MSCI's main world equity index <.msciwd> was also up a touch on the day at 394.85, having hit a record high last week.

Australia, Korea and many South-East Asian indexes hit record highs on Friday. Japanese and Chinese markets were closed for a holiday.

JOBS FOCUS A survey showed euro zone service sector growth dipped unexpectedly in April, with Italy's index hitting its weakest since October 2005, weighing on the euro.

But the survey also showed companies raised prices at the fastest pace in nearly a year, boosting expectations the European Central Bank would raise interest rates in June to 4 percent and perhaps further later this year.

In the United States, the Fed is expected to cut interest rates from 5.25 percent later this year but higher-than-expected payrolls data could pour cold water on the rate cut debate.

''The market's been surprised by a bounce back and the resilience of U.S. data,'' said Adrian Hughes, currency strategist at Societe Generale.

''The door (for a rate cut) is ajar, not fully open. We have to take some data to walk through that door to go into a rate cut. We are still waiting in front of the door.'' The euro was slightly down on the day at $1.3546 , off an all-time high of $1.3682 set last week. The dollar was also steady at 120.37 yen after hitting a two-month high on Thursday.

The dollar index rose above 82.0, its highest since April 17 and up from two-year lows hit earlier this week.

In the oil market, London Brent crude , currently seen as the most representative of global oil prices, was up 36 cents at US$66.39.

It fell 20 cents on Thursday after the release of several foreign workers seized in Nigeria's restive oil-producing Niger Delta allayed concerns over further disruptions to production.

Gold was little changed in Europe with investors awaiting U.S. payrolls data that could give further direction to the precious metal and the dollar. Spot gold was at $680.40 an ounce .

REUTERS PV VV1453