FOREX-US job gain boosts dollar, Greek worries linger

                                
 * US employment grows at fastest pace in 4 years
                                
 * Euro zone debt contagion issues weigh on sentiment
                                
 * Euro on track for biggest weekly loss since Oct 2008
                                
 * Sterling hits 1-yr low on uncertainty after UK vote
                                
 * Traders watching yen for signs of massive risk aversion
  (Updates prices, adds comment)
                                
 By Steven C. Johnson
                                
 NEW YORK, May 7 (Reuters) - The dollar rose against the yen
on Friday after data showed U.S. employment grew last month at
its fastest pace in four years, but the euro kept struggling on
fear that Greece's debt woes could spread to other countries.
                                
 Sterling hit a one-year low beneath $1.45 after the UK
election left no party with an outright parliamentary majority,
but it rebounded when Conservative Party leader David Cameron
said he would try to form a minority government. For details,
see [ID:nLAL004425].
                                
 A surprisingly large addition of 290,000 U.S. jobs in April
boosted the dollar against the yen and helped currencies
retrace some of their massive moves on Thursday when European
debt worries were compounded by a huge intraday stock slide
that was partly due to a trading error.
                                
 But while the jobs data bolstered confidence in a U.S.
economic recovery, it provided only a modest jolt of optimism
in a market that is very nervous about contagion risks in
Europe.
                                
 "Traders' main concern is the sovereign debt issue, even
though signs the U.S. economy is picking up do make people see
the dollar as a comparatively healthy currency at the moment,"
said Sebastien Galy, senior strategist at BNP Paribas in New
York.
                                
 "But the U.S. yield curve should have steepened much more
and the dollar should have gotten a bigger boost against the
yen on such strong jobs data, so we're not out of the woods."
                                
 While the dollar rose 0.6 percent to 91.08 yen <JPY=>, it
was well off a session peak above 93 yen. The euro gave up
earlier gains and was last down 0.3 percent at $1.2629 <EUR=>,
about a cent above a 14-month low hit on Thursday.
                                
 Germany's approval of a 110 billion euro rescue for Greece
on Friday did little to help euro sentiment. BNP's Galy said
traders still fear that debt woes in other euro zone countries,
such as Spain and Portugal, may cause losses at European banks,
causing a general crisis of liquidity and confidence.  
                                
 The euro was down 5.2 percent this week, on pace for its
worst weekly slide since October 2008, and down nearly 12
percent this year. BNP Paribas this week predicted the euro
would hit parity against the dollar in early 2011.
                                
 Sterling was down 0.6 percent at $1.4670 <GBP=D4>, off a
one-year low of $1.4475 touched after the election results. The
dollar recovered losses against the Canadian dollar seen after
Canada reported a record record 108,700 jobs in April <CAD=>.
                                
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 For a graphic of the election response in the gilt and
sterling markets, click
                                
 http://graphics.thomsonreuters.com/10/UK_ELMR0510.gif
                                
 ^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^
                                
 UNCERTAINTY, ANXIETY STILL PROMINENT
                                
 Analysts said the yen remained an important barometer of
risk. As financial markets swooned on Thursday, the yen soared
against other currencies as investors unwound carry trades,
which use cheaply borrowed yen to finance purchases of other
currencies and assets.
                                
 The dollar neared 88 yen Thursday for its biggest daily
fall since 1998, while the euro fell below 111 yen to its
lowest level since 2001 before rebounding 0.9 percent Friday to
to 115.64 yen <EURJPY=>.
                                
 "As long as people are worried about European turmoil, the
dollar will be capped at 93 or 94 yen," said Hidetoshi
Yanagihara, senior FX trader at Mizuho Corporate Bank in New
York.
                                
 Finance officials from the Group of Seven nations convened
a conference call Friday to discuss the Greek situation,
although Japan's finance minister said he did not think they
were considering joint currency intervention. [ID:nN06238681]
and [ID:nTOE646036]
                                
 Analysts said markets are still waiting for the European
Central Bank, perhaps in concert with other central banks, to
announce measures to boost liquidity, including dollar swap
lines used during the worst of the financial crisis.
                                
 Investors speculated this week that the ECB could even buy
euro zone government debt to cut countries' borrowing costs,
but President Jean-Claude Trichet said that had not been
considered.
                                
 (Additional reporting by Wanfeng Zhou in New York; Editing
by Kenneth Barry)