FOREX-Australian dollar firms on China data but remains vulnerable
* Aussie gains on China output, gains seen fleeting
* Dollar finds base after five straight losing days
* Traders preoccupied with when Fed will start tapering
LONDON, Aug 9 (Reuters) - The Australian dollar rose to its highest in more than a week against the U.S. dollar on Friday, bolstered by upbeat factory data from China though strategists warned the Aussie's rebound could be short-lived.
It could be vulnerable to a strengthening U.S. dollar as the Federal Reserve looks likely to scale back its stimulus programme in September. The dollar was steady after recovering against a basket of currencies from a seven-week low plumbed on Thursday.
The Australian currency rose 0.7 percent to $0.91562 , extending its 1.2 percent gain the previous day on stronger-than-expected trade data from China, Australia's biggest export market. The Aussie recovered smartly from a three-year low of $0.8848 hit on August 5.
Traders said it could lose its gains as investors bought the U.S. currency on dips, helping the dollar recover from seven-week lows against a basket of currencies.
"We see a rebound after a three-year low. We're back up due to some improvement in China data but we think it is a short term rebound," said Bernd Berg, global FX strategist at Credit Suisse. He added that the Aussie continues to lose rate support and is also significantly overvalued, forecasting it to fall to $0.85 in three months.
The Reserve Bank of Australia cut its main cash rate to a record low of 2.5 percent this week.
In contrast, U.S. Federal Reserve policymakers have hinted in recent weeks that the central bank could start to scale back its monthly bond-buying in September, but this will depend on further improvement in the job market. Thursday's weekly jobless claims data showed layoffs fell to their lowest since late 2007.
"There are some key U.S. indicators next week, including the retail sales, so I think the market will focus on that. If you do get stronger data the dollar should move higher," said Kiran Kowshik, currency strategist at BNP Paribas.
Yet, not all investors are convinced the Fed will trim its bond-buying of $85 billion a month next month after data last Friday showed U.S. employers slowed their pace of hiring in July.
The dollar index was flat at 81.02. It had hit a trough of 80.868 on Thursday, its lowest since June 19. The index has shed 1 percent this week as some trimmed favourable bets on the dollar as U.S. bond yields eased.
U.S. 10-year Treasury yields remain below the highs above 2.70 percent seen before last week's U.S. payrolls data and the spread between similarly-dated German and Japanese bonds have narrowed in the past few days. That has prompted investors to trim long dollar positions.
As a result, the euro hit a seven-week high of $1.3401 on Thursday and was last flat on the day at $1.3375, not far from its June peak of $1.34175. The currency drew strength from an above-forecast German trade surplus on Thursday and Wednesday's much stronger-than-expected German factory data.
The U.S. dollar slipped 0.2 percent to 96.53 yen, giving up some of overnight gains and edging towards a seven-week low of 95.81 yen hit on Thursday.