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By Vivianne Rodrigues
NEW YORK, April 7 (Reuters) - The dollar advanced against the yen and euro on Monday as stabilizing financial markets raised optimism that the worst of the financial crisis might be over, encouraging some investors to buy riskier assets.
Analysts said the dollar also got some support as traders were reluctant to buy the euro ahead of the European Central Bank policy meeting on Thursday and the G7 nations' gathering late in the week.
While sentiment toward the dollar had improved, worries about the overall health of the U.S. economy continued to cast a pall over the market, restricting the greenback's gains, they said. Data on Friday showed the economy shed jobs again in March for a third straight month.
"The dollar has been trading on a tight range against the euro and with the G7 and the ECB meetings later this week, I wouldn't expect significant moves in the currency," said Greg Salvaggio, a currency trader at Tempus Consulting in Washington D.C. "At the same time, the situation in the financial markets seems to be more stable now and that is also giving the dollar a lift."
In late afternoon trading the euro was down 0.2 percent at $1.5705 <EUR=>. The dollar gained 0.9 percent against the yen to 102.42 yen <JPY=>, after earlier spiking to 102.85 yen.
ECB, G7 MEETINGS
The dollar's strong gains overnight were also sparked by reports of Japanese pension funds buying overseas assets as they start their new financial year, said Jon Gencher, director of FX sales at BMO Capital Markets in Toronto.
"In addition, lending support to both the dollar and U.S. equity markets were reports that China would allow its commercial banks to invest in U.S. stocks and mutual funds as it seeks to widen its overseas investment program," said Gencher.
"Sentiment has certainly improved, but we are not out of the woods yet. There are still some ongoing concerns that will continue to hang over the markets."
Central bankers and finance ministers from the Group of Seven rich nations meet in Washington later this week and are expected to discuss a broad range of proposals aimed at restoring confidence in the battered banking system.
These measures, ranging from increasing transparency to strengthening authorities' oversight powers, are seen as boosting the dollar, which has been pressured by aggressive monetary easing by the Federal Reserve.
"Ahead of the G7 and ECB (meetings), people are not going to get aggressive in terms of buying the euro," said Brian Dolan, chief currency strategist at Forex.com in Bedminster, New Jersey. "Nobody really knows what, if any, protest ECB (President Jean-Claude) Trichet will offer for the strength of the euro. Clearly, they are not pleased with it."
The Fed has slashed its benchmark overnight lending rate by 3 percentage points to 2.25 percent since mid-September, wiping out the dollar's yield advantage against the euro.
The ECB is widely expected to leave its key rate on hold at 4 percent, while the Bank of England, which also meets on Thursday, is seen cutting rates a quarter percentage point to 5 percent. (Additional reporting by Lucia Mutikani; Editing by Chizu Nomiyama)