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By Toni Vorobyova
LONDON, May 2 (Reuters) - The dollar steadied versus the euro on Friday as investors looked ahead to a key non-farm payrolls report for clues on whether the economy is strong enough to enable a pause in the rate-cutting cycle.
The Federal Reserve cut rates to 2 percent on Wednesday, as most expected, and signalled that its next move would depend on developments in financial markets and the economy.
That puts the spotlight firmly on the 1230 GMT employment data release, with a loss of 80,000 jobs forecast for April.
A stronger reading would strengthen expectations that the Fed's aggressive interest rate cutting cycle might be over after eight months and 325 basis points of easing. But a loss of even more jobs could bring an abrupt end to the dollar's recovery.
"The Fed statement hinted that the Fed might pause on rates for the time being, which is clearly a dollar positive. But on the other hand there is expectation of a bad release from the employment report today ... and this probably should trim for now the dollar's gains, especially against the euro," said Roberto Mialich, FX strategist at UniCredit in Milan.
"The market was fairly long dollars in the last few days and weeks so, (any) bad news coming from the U.S. could offer the opportunity to take profit and make some short-covering in favour of the euro," he said.
Traders said market moves were accentuated by thin liquidity, with national holidays in much of Europe this Thursday and UK and Japan off at the start of next week.
By 1010 GMT, the euro was steady at $1.5476 <EUR=>.
The dollar hit a five-week high at 105.02 yen <JPY=>, before retreating to 104.62.
The yen, a funding currency for the relatively risky carry trade, was pressured by strong equity markets with the Nikkei 225 closing at its highest in nearly four months .N225, and European shares gaining more than one percent .
The greenback had been bolstered in recent sessions on expectations that the U.S. economic slowdown may not be as deep as some originally thought, and by signs of softening in euro zone sentiment surveys.
However analysts at ING said the risks to the payrolls report -- and thus to the dollar -- were on the downside, forecasting a loss of 150,000 jobs.
"Over coming months we believe weak labour data can be a key catalyst to a re-pricing of Fed expectations back toward cuts. For example survey evidence points toward the unemployment rate spiking to 8 percent," they said in a research note.
"For this reason we struggle to be too upbeat on the dollar just yet." (Editing by Mike Peacock)