* Euro falls below $1.30 vs dollar, more losses seen
* Peripheral bond spreads widen, hitting euro
* Underlying trend in U.S. jobless claims still downward
* U.S. payrolls report on Friday to set dollar's direction
(Recasts; updates prices, adds quotes, changes byline)
By Julie Haviv
NEW YORK, Jan 6 (Reuters) - The euro slumped to a five-week
low against the dollar on Thursday, breaching a key support
level, with more losses seen if upcoming jobs data proves
stronger than expected.
Upbeat U.S. data has painted a rosier picture of the
economy and is in stark contrast to worries about the euro
zone's sovereign debt crisis.
Magnifying euro losses are expectations Friday's U.S.
employment report will show a 175,000 gain in non-farm payrolls
for December, according to a Reuters poll. Some in the market
are expecting an increase of as much as 500,000.
"There's a strong consensus that there will be some good
numbers coming out of the States tomorrow after that ADP
report, and expectation of a huge payrolls number is fueling
all sorts of dollar buying," said C.J. Gavsie, managing
director of FX sales at BMO Capital Markets in Toronto.
The euro broke below support at $1.30 on Thursday,
suggesting more losses to come. It fell to $1.2997 on trading
platform EBS and last traded down 1 percent at $1.3018
<EUR=EBS>.
The next downside target is $1.2970, the euro/dollar's
December low, traders said.
The euro came under heavy selling pressure after spreads
between peripheral euro zone government bond yields and
benchmark German debt widened on concerns about the region's
spreading debt crisis.
A round of bond issues by peripheral euro zone economies
next week raised concerns about their high debt levels.
That caused peripheral spreads to widen versus benchmark
German debt, hitting the euro zone single currency in a vicious
spiral. For details, see []
Traders said the euro's slide below its 200-day moving
average around $1.3081 accelerated its decline and some said
the euro could fall to $1.2575 in a fairly short order.
Options traders said there has been steady demand for
downside euro/dollar strikes around $1.26 over the next three
months as investors hedged against expectations that euro area
stresses will escalate.
U.S. initial jobless claims rose more than expected in the
latest week, a decline in the four-week average to a fresh low
of more than two years indicated that the labor market is also
on the mend. []
The jobless claims report followed ADP data showing U.S.
private sector employment posted a record increase last month
of 297,000 jobs.
Traders said should this string of positive U.S. data
continue, the euro is likely to bear the brunt of the dollar's
rally.
"If you consider the fact that the U.S. recovery is far
better than most major economies, then that kind of spells a
lower euro," said Tim O'Sullivan, chief dealer at Forex.com, a
division of Gain Capital in Bedminster, New Jersey.
"It is possible that the dollar is going to perform well
now because of fundamentals, and the euro is bearing the weight
of that right now."
Another key event this week is Fed Chairman Ben Bernanke's
testimony on the U.S. economic outlook before the Senate Budget
committee on Friday after the jobs report.
(Additional reporting by Gertrude Chavez-Dreyfuss, Wanfeng
Zhou and Steven C. Johnson; Editing by Andrew Hay)
