* Euro recovers vs dlr after Thursday's sharp fall
* Trading subdued as U.S markets shut for holiday
* Euro zone services PMI dips from May's 7-mth high
(adds quote, updates prices, adds details)
By Harpreet Bhal
LONDON, July 3 (Reuters) - The euro recovered against the
dollar on Friday as traders picked up the single European
currency following its fall the previous session, when weak U.S.
jobs data helped lift the dollar across the board.
Some traders booked profits on the euro's slide on Thursday,
while analysts said currency movements were aggravated due to
thin volumes as U.S. markets were closed for the Independence
Day holiday.
On Thursday, data showed U.S. employers cut a
greater-than-expected 467,000 jobs in June, leading to
heightened risk aversion on the back of pessimism about the
recovery of the U.S. economy.
The bleak data pressured the euro and currencies perceived
to be higher risk such as the Australian and New Zealand
dollars, but the single European currency found its footing on
Friday after selling subsided.
This kept the euro hovering at the $1.40 level, as some
market players judged the sell-off in the euro -- which knocked
it from a near three-week high around $1.42 hit earlier in the
week -- may have been overdone.
"The big drift downwards that we saw (on Thursday) was
simply stop-loss selling and that has now unwound," said Robert
Minikin, senior currency strategist at Standard Chartered in
London.
He added a slight recovery in the euro versus the yen after
a 2 percent fall on Thursday indicated lower risk aversion.
At 1217 GMT, the euro <EUR=> was at $1.4006, up 0.5 percent
from U.S. levels at 2130 GMT. On Thursday, the pair fell as low
as $1.3927, its lowest since June 25.
The euro also recovered against the yen <EURJPY=R> to trade
up half a percent at 134.39 yen. The Australian dollar <AUD=D4>
climbed 0.7 percent against the dollar to $0.7983, while the New
Zealand dollar <NZD=D4> rose 1 percent at $0.6333.
The dollar index <.DXY>, which tracks the dollar's value
against a basket of currencies, was up slightly at 80.290.
DIVERSIFICATION DEBATE
Earlier in the session, the euro showed little reaction to
data showing the euro zone Services Purchasing Managers Index
(PMI) in June stood at 44.7, down from May's seven-month high of
44.8 [].
Separate figures showed euro zone retail sales fell 0.4
percent on the month in May, more than forecasts for a 0.1
percent slide [].
With the U.S. non-farm payrolls out of the way, investors
will likely focus on a Group of Eight (G8) meeting on July 8-10
for any further debate on currency diversification plans.
A Japanese official said on Friday major countries should
support the dollar as the key international currency at the
summit, although emerging nations may discuss a new global
reserve currency on the sidelines [].
China has asked for a debate on a new global reserve
currency when leaders from the G8 meet with the G5 emerging
economies next week in Italy, a G8 source told Reuters.
"In the short term, moderate USD strength is likely to be in
the global interest in terms of keeping long-term rates down and
relieving what may emerge as commodity price pressures on
inflation down the road," Barclays Capital Research said in a
note to clients.
"So while it may be early to sell USD, the fact that the
(diversification) discussion has become so public suggests that
USD weakness would accompany a global recovery as confidence is
restored in the medium and long term," the note said.
