FOREX-Euro zone PMI lifts euro, trend for firmer dollar intact
* Dollar index near 4-week high, will likely trade higher
* Euro rises after euro zone manufacturing PMI data
* Focus on central bank meetings, Friday's US jobs data
LONDON, July 1(Reuters) - The euro rose against the dollar on Monday after data showed euro zone manufacturing activity stabilised, but its gains were seen limited due to expectations the bloc would lag the U.S. economy. The dollar rose to its highest in nearly four weeks against the yen and was expected to push higher on the prospect of the U.S. Federal Reserve winding down its stimulus even as other central banks keep policy loose. The euro was up 0.3 percent at $1.3040, recovering after a dip last week to $1.29845, its lowest since early June. But it stayed below chart resistance at $1.30655, the 100-day moving average, and the 200-day average at $1.3074. The euro zone manufacturing purchasing managers' index hit a 16-month high, suggesting a downturn in the sector was easing. Spain and Italy also showed signs of improvement.
"Euro/dollar has held up well so far but we expect it to trade lower over the next month or so," said Elsa Lignos, currency strategist at RBC. The dollar index, which measures the dollar's value against a basket of major currencies, was steady at 83.078, having hit a four-week peak of 83.344 on Friday. Friday's U.S. payrolls report will be key. A strong reading would boost the dollar by fanning speculation about an early paring back of the Fed's $85-billion-a-month bond-buying. "This prevailing tone of dollar-positive sentiment is set to remain as the uncertainty around Fed tapering, which put a lot of pressure on the dollar, is more or less gone," said Lutz Karpowitz, currency analyst at Commerzbank. Rising yields and an improving domestic economy give the U.S. currency a big advantage over the euro and yen. In contrast to the Fed, the European Central Bank is likely to emphasise at its monthly meeting on Thursday that the euro zone economy still needs help. The dollar rose 0.5 percent to 99.58 yen, close to a near four-week high of 99.73 yen hit earlier. Traders said a reported options expiry at 99.50 yen may keep the dollar close to that level. Stop loss buy orders were cited above 99.60 yen. Expectations the Bank of Japan will continue with aggressive monetary easing weighed on the yen, with the euro up 0.8 percent at 129.90 yen, having earlier hit a near three-week peak of 130.07 yen. The Bank of England and the Reserve Bank of Australia also hold policy meetings this week. The Australian dollar hit a three-year low of $0.9110 before recovering to last trade at $0.9189.
(Additional reporting by Anooja Debnath, editing by Nigel Stephenson)