FOREX-Euro dips, but weak US payrolls might sting USD

* Euro seen hemmed in by sovereign bids and offers
* Investors positioning for U.S. jobs data

* Dollar/yen up on Japanese buying after holidays

By Jessica Mortimer

LONDON, May 6 (Reuters) - The euro fell further against the dollar in thin trade on Friday after steep losses the previous day, as markets positioned for a key U.S. jobs report.

The euro EUR= dipped below 1.4500 after falling nearly 2 percent on Thursday to $1.4510, with further falls in oil prices leaving investors wary of buying back riskier assets. [O/R]

But the euro was expected to remain supported by expectations euro zone rates would continue to rise faster than U.S. ones, as the European Central Bank tries to tame high inflation.

"We've had a healthy correction in euro/dollar, but I don't think this is a sea change in sentiment and wouldn't expect it to move much below $1.45," said Paul Robson, currency strategist at RBS.

Market participants saw limited room for euro gains, however, and sovereigns were said to be looking to take profits after buying at lower levels, with offers seen at $1.4580-85.

The euro also faced resistance at its 21-day moving average around $1.4576.

The dollar was supported after jumping on a massive fall in commodities on Thursday. On Friday, Brent crude LCOc1 extended losses after diving 10 percent the previous day, while silver XAG= steadied from Thursday's 12 percent slump.

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Graphic on commodity moves: r.reuters.com/nab49r

Dollar/commodity correlations: r.reuters.com/wex39r

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U.S. April non-farm payrolls, due at 1230 GMT, were forecast to rise 186,000, but some analysts said there was a risk of a weaker number given recent worse-than-forecast weekly jobless claims and private payrolls data. ECONUS [ID:nN05211728]

Analysts said a weaker reading would confirm the view that sluggish U.S. economic growth will hold the Federal Reserve back from raising interest rates in 2011 or even beyond as other central banks raise rates.

This would widen the rate differential between the dollar and other currencies, keeping the U.S. currency weak, they said.

The dollar index .DXY was little changed at 74.158, still well above a three-year trough of 72.696 hit this week.

IMPLIED VOLATILITY UP

The euro fell sharply on Thursday after ECB President Jean-Claude Trichet did not signal a June rate hike. Analysts said this showed investors had become overly bullish about the euro zone rates outlook and they were forced to pare back long euro positions. [ID:nLDE7440GG]

The euro gained some support early on Friday after ECB policymaker Ewald Nowotny said the bank's stance should not be interpreted as dovish. [ID:nHEL010146]

But it was slapped back down immediately, suggesting FX moves were getting erratic. Highlighting this was a rise in implied volatility, with one-month euro/dollar vol hovering around 12 percent EUR1MO= after jumping on Thursday.

"New moves could generate volatility, and another driver could come from the other side of the Atlantic with NFP data this afternoon," options analysts at SocGen said in a note.

The yen fell after a big rise the previous day, easing immediate concerns about possible further official intervention to stem its gains. Traders reported demand to sell yen from Japanese accounts as they returned from the Golden Week holiday.

The dollar was up 0.2 percent at 80.31 yen JPY=, bouncing from a seven-week low of 79.57 yen hit on Thursday and tackling resistance from the bottom of the Ichimoku cloud at 80.493.

Market players saw limited chances of intervention from Japanese authorities, let alone joint action by the Group of Seven countries, after Japanese Finance Minister Yoshihiko Noda said on Thursday that current forex moves appeared different from those seen when the G7 intervened in March. [ID:nL3E7G525S]

Major commodity currencies recovered, led by strong gains for the Australian dollar, which was up 0.85 percent at $1.0671 AUD=D4, benefiting after the Reserve Bank of Australia warned a further rate rise would be needed. [ID:nL3E7G607H]

(Additional reporting by Naomi Tajitsu; Editing by John Stonestreet)

* Euro seen hemmed in by sovereign bids and offers