FOREX-Euro holds gains ahead of U.S. jobs data

* Euro holds gains after rallying on ECB rate rise view

* Dollar on back foot, investors await US payrolls

* Analysts: UST yields need to rise on data to boost USD

(Adds comments, updates throughout; previous
SYDNEY/SINGAPORE)

By Naomi Tajitsu

LONDON, March 4 (Reuters) – The euro held near a four-month
high against the dollar on Friday on expectations euro zone
interest rates may rise next month, while investors waited to
see if an expected improvement in U.S. jobs data would boost the
U.S. currency.

The euro took a breather after surging as high as $1.3976
the previous day, when European Central Bank President
Jean-Claude Trichet stunned investors by saying a rate rise in
April was a possibility in its drive to fight inflation risks.

Analysts said the euro was poised for more near-term gains
as the ECB’s announcement, fortifying expectations the ECB will
raise rates well before the U.S. Federal Reserve, had widened
the gap between euro zone and U.S. government bond yields.

Some said the market would take a cue from U.S. yields to
determine the dollar’s move on U.S. payrolls due at 1330 GMT.
The central forecast in a Reuters poll is for 185,000 new jobs
to have been added to the economy last month, after an addition
of 36,000 in January. (ECON: Quote, Profile, Research)

“We should see a better non-farm payrolls figure, but if
U.S. yields don’t rise, it won’t help the dollar,” said Marcus
Hettinger, global FX strategist at Credit Suisse in Zurich.

“Interest rate differentials … are playing in favour for
the euro, so we could see a break above $1.40 any time now.”

ECB rate rise speculation has expanded the yield spread
between two-year German (DE2YT=TWEB: Quote, Profile, Research) and U.S. government debt
(US2YT=RR: Quote, Profile, Research), the most sensitive maturity to official rate moves,
to around 1.0 percent, its widest since January 2009.

Euro interest rate swaps soared across the curve with the
two-year rate (EURAB6E2Y=: Quote, Profile, Research) hitting around 2.33 percent, highs
not seen since early 2009.

Many in the market expected rate rise speculation to push
the euro higher, although some analysts pointed out the dangers
of tightening policy when the economies of some euro zone
countries are suffering from debt problems.

In early European trade, the euro (EUR=: Quote, Profile, Research) was flat on the day
at $1.3950. The euro edged up to a session high of $1.3969, but
offers above the psychologically key $1.40 were seen keeping a
lid on near-term gains.

It hovered near its 200-week moving average around $1.3957.
A weekly close above that would pave the way for a move higher,
although some near-term resistance was seen around $1.3980, the
78.6 percent retracement of the euro’s down move from November.

“We think the euro will remain strong in the next week or
two, possibly even testing … highs of $1.4280,” said
Christopher Gothard, head of FX for Brown Brothers Harriman in
Hong Kong, referring to the euro’s next major peak on charts,
its early November high of $1.4283.

The euro held gains against sterling (EURGBP=D4: Quote, Profile, Research) and the yen
(EURJPY=R: Quote, Profile, Research), after the single currency rallied to a four-month
high against the Japanese currency of 115.18 yen on EBS on
Thursday.

But the shared currency (EURCHF=R: Quote, Profile, Research) slipped 0.3 percent on
the day to 1.2967 Swiss francs, which rallied after Swiss
National Bank Vice Chairman Thomas Jordan said rates in the
country will have to rise in the medium term. [ID:nWEB3522]

The dollar (JPY=: Quote, Profile, Research) traded flat at 82.45 yen, and was at
76.529 against a currency basket (.DXY: Quote, Profile, Research), little changed on the
day and hovering near 76.385 hit on Thursday, its weakest since
early November.

While some in the market said a post-payrolls jump in U.S.
Treasury yields may provide a dollar reprieve, analysts said a
disappointing reading could fan worries about the outlook for
the U.S. labour market.

Such concerns could pick up given uncertainty about how the
recent surge in oil prices may affect the U.S. economy and
companies.
(Additional reporting by Asia Forex Team; Editing by Ruth
Pitchford)