Market News

* Optimism about U.S. economy lifts risk appetite

* U.S. Feb payrolls fall 36,000, less than expected

* BOJ may debate easing again this month-sources

* Aussie, kiwi post best daily rise in months vs yen (Updates prices, adds comment)

By Wanfeng Zhou

NEW YORK, March 5 (Reuters) - The dollar rose against theyen on Friday after a government report showed U.S. employerscut fewer jobs than expected last month, stoking optimism aboutan economic recovery.

The Japanese currency also dropped versus the euro andhigher-yielding currencies such as the Australian and NewZealand dollars as the data encouraged investors to buy riskyassets funded by cheaply borrowed yen.

The U.S. economy shed a smaller-than-expected 36,000 jobsin February, Labor Department data showed, leaving theunemployment rate unchanged at 9.7 percent. Analysts polled byReuters expected payrolls to drop by 50,000, with the joblessrate edging up to 9.8 percent. For more, see [ID:nN04252324]

"It was a risk appetite event," said Michael Woolfolk,senior currency strategist at BNY Mellon in New York. "The factthat the U.S. labor market is in better shape than we werethinking supports the U.S. recovery story and it encouragesmarket participants to put on risky trades."

The dollar rose as high as 90.58 yen , the strongestlevel in more than a week, according to Reuters data. It waslast at 90.37 yen, up 1.5 percent on the day.

Rising Treasury yields also helped lift dollar/yen, whichhas been more sensitive to U.S. interest rate expectationslately, analysts said. After the data, U.S. short-term interestrate futures showed expectations the Federal Reserve wouldraise its key target rate later this year rose. See[ID:nN05202417]

But Richard Franulovich, senior currency strategist atWestpac in New York, said the jobs data would not lead the Fedto bring forward rate hikes. "I think they would have to waitfor three to four months of positive employment numbers," hesaid.

The euro rose 1.7 percent to 122.99 yen . TheAustralian dollar jumped 2.2 percent to 81.90 yen ,its biggest daily gain since October at current prices. The NewZealand dollar rallied 2.8 percent to 62.86 yen , thebest one-day performance since May at current prices.

The Japanese currency also came under pressure aftersources said the Bank of Japan was likely to debate this monthwhether to ease its ultra-loose monetary policy again as itremained under government pressure to help pull Japan out ofdeflation. [ID:nTOE6230A7]

Against the greenback, the euro rose as high as $1.3629,according to Reuters data, reversing earlier losses as higherstock and commodity prices lifted risk appetite. It last tradedat $1.3613, up 0.3 percent on the day .

Concerns about debt problems in Greece eased after a saleof 10-year bonds on Thursday attracted strong demand. Thespread between yields on Greek government bonds and euro zonebenchmark German bunds narrowed on Friday.

Traders were watching for the outcome of a meeting betweenGerman Chancellor Angela Merkel and Greek Prime Minister GeorgePapandreou in Berlin on Friday. Merkel said on Wednesday shewould offer no financial aid to Greece. The two leaders werescheduled to hold a news conference at 12:30 p.m. (1730 GMT).

"I think the Greek situation and sovereign debt in generalis going to continue to pop its head up every now and then,"said Ronald Simpson, director of currency research at ActionEconomics in Tampa, Florida. "For now it appears it'ssubsided."

The ICE Futures U.S. dollar index, which tracks thegreenback versus a basket of currencies, was down 0.1 percentat 80.488 <.DXY>. (Additional reporting by Gertrude Chavez-Dreyfuss; Editing byAndrea Ricci)