* Euro nears 4-mo low vs dollar, down over 3 pct on wk
* Drop in U.S. unemployment rate saves the day for dollar
* Dollar index up 2 percent for the week
* Euro/sterling biggest mover of the day, down 1.1 pct
(Adds quotes, background, updates prices, changes byline)
By Julie Haviv
NEW YORK, Jan 7 (Reuters) - The euro hit its lowest level
against the dollar in nearly four months on Friday on worries
about use of euro zone peripheral country bonds as collateral
and a drop in the U.S. unemployment rate.
It has been a rough 2011 so far for the euro, which has
fallen 3.3 percent against the greenback, positioning it for
the worst weekly loss in 6 weeks.
The dollar initially gave up gains against the euro after
disappointing U.S. job creation data. It recovered as traders
saw a dip in the U.S. unemployment rate supporting a stronger
outlook for the greenback. [].
Talk the Swiss National Bank had excluded from eligibility
the use of Portuguese bonds as collateral for bank loans
weighed on the euro. Fears persisted even after the Swiss
National Bank said that was not the case. [].
"Worries about the restructuring among banks being built in
is starting to affect the creditworthiness of these peripheral
countries," said David Woo, head of global rates and currencies
research at Bank of America Merrill Lynch in New York.
In midday trading, the euro <EUR=EBS> fell as low as
$1.2915 on trading platform EBS, its lowest since
mid-September. It was last at $1.2930, down 0.6 percent on the
day. Traders also took out options barriers at $1.2950 and
$1.2925.
Support for the euro in the $1.2915 area from sovereign
buyers has prevented its collapse, traders said.
A large order to sell euros against sterling right after
the U.S. employment data weighed on the euro versus the dollar,
traders said.
The U.S. Labor Department on Friday reported U.S. non-farm
payrolls increased 103,000, below economists' expectations for
gains of 175,000 jobs, but unemployment dipped to 9.4 percent,
the lowest level in more than 1-1/2 years.
Also favoring the dollar were strong upward revisions to
the prior month's job gains.
Dean Maki, chief U.S. economist at Barclays Capital in New
York, said the U.S. recovery continues to broaden, with ISM
readings and the employment report indicating the service
sector is now driving the recovery.
"Recent data indicate the expansion has moved to a balanced
and sustainable stage," he said.
Upbeat U.S. data this week indicated the economy was on a
solid recovery path, in stark contrast with the euro zone where
sovereign debt woes continue to weigh on the euro.
Comments by China that it will continue to buy euro zone
debt supported the single currency in past days and China made
another positive statement on Friday. []
Options traders said there has been steady demand for
downside structures in euro/dollar and other euro crosses such
as those versus sterling, the Swiss franc, the Australian
dollar and a broad swath of emerging market currencies.
Sharp losses in euro/sterling pressured the euro against
the greenback, with one U.S. investment bank reportedly making
a huge order to sell the single currency versus the pound.
A suddenly upbeat outlook on the UK economy has everybody
jumping into the "buy sterling" mentality. With British
inflation expectations ramping up again, the likes of BNP
Paribas, Citigroup and Societe Generale have penciled in one to
two rate hikes from the Bank of England by the end of the year,
all supportive of the pound.
By midday, euro/sterling was the biggest mover of the day,
falling 1.1 percent to 83.18 pence <EURGBP=D4>.
The dollar was up 0.3 percent against a basket of major
currencies to 81.027 <.DXY>, rising as high as 81.094, its
strongest level since early December.
(Additional reporting by By Gertrude Chavez-Dreyfuss;
Editing by Andrew Hay)
