* Euro rally stalls after climbing well above $1.2700
* High-yielders hold gains on improving outlook
* Canada dollar surges on strong jobs data
(Updates prices, adds details)
By Nick Olivari
NEW YORK, July 9 (Reuters) - A rally that pushed the euro to its highest level in more than two months stalled on Friday and the currency slipped on technical factors, with some investors betting the recent move was too far, too fast.
The euro touched $1.2723 earlier in the session on electronic trading platform EBS EUR=EBS, its highest level since early May. The currency was supported by strong German factory data, a positive U.S. jobs report and more clarity on European bank stress tests.
"The euro tested but did not break technical resistance levels overnight and has subsequently given up a share of its recent gains," said Vassili Serebriakov, a currency strategist at Wells Fargo Bank in New York.
"While there have not been any obvious catalysts for the euro's pullback this morning, the speed of the move suggests the underlying sentiment on the currency remains negative," he added.
In late afternoon trading in New York, the euro traded down 0.4 percent at $1.2637 EUR=, after reaching $1.2722 according to Reuters data. The total gain for the week was 0.7 percent at current prices.
Some Asian central banks were seen willing to reestablish long euro/dollar positions above $1.2750 because a clear breach of $1.2730 would suggest the downtrend had been broken.
But despite the recent rally in the European single currency, the euro zone's debt problems have discouraged most investors from taking long positions in the euro.
"There is still a risk that euro shorts get covered and the bounce extends, but it is no more than that -- a short-term bounce," said Adam Cole, global head of foreign exchange strategy at RBC Capital Markets.
That view was reflected in the gap between one-month risk reversals EUR1MRR=ICAP, which have fallen nearly 55 basis points to 0.85/1.35 percent since end-June, and one-year risk reversals EUR1YRR=ICAP, which have shed 25 basis points.
This indicates traders are willing to pay a higher premium to buy the right to sell the euro in coming months.
Ian Stannard, a foreign exchange strategist at BNP Paribas, said that increased demand for high-yielding commodity currencies such as the Australian and Canadian dollars would also hit the euro, which has come to be seen as a funding currency.
CANADIAN DOLLAR RISES
One of Friday's biggest movers was the Canadian dollar CAD=, which surged around 1 percent against the greenback on a stronger-than-expected improvement in jobless figures. [nSCL9IE63J]
The U.S. dollar traded down at C$1.0334, after hitting its lowest since late June.
The Canadian figures mirror robust jobs data from Australia earlier this week that drove the Australian dollar up more than 4 percent.
Strong data has boosted hopes of a firmer global economic recovery and raised pressure on the low-yielding yen JPY= as investors cut long positions and shifted into high-beta currencies like the Aussie AUD= and New Zealand dollars NZD=.
Against the yen, the euro touched a two-week high earlier of 112.69 yen on EBS EURJPY=EBS and 112.67 on Reuters data EURJPY= after jumping more than 1 percent on Thursday, but pared those gains to trade last at 112.05 yen on Reuters.
The dollar was up 0.3 percent at 88.64 yen JPY=.
Currency analysts at Citigroup Inc said in a note a sharp shift in positioning and a decisive move higher in rate differentials in favor of the United States suggests dollar/yen is poised for an up move in the near term.
The dollar was down 0.9 percent against the South Korean won KRW= after the U.N. Security Council on Friday condemned what it called an attack leading to the sinking of a South Korean ship in March, but in a concession to China stopped short of explicitly blaming North Korea. [ID:nN09272429] (Additional reporting by by Vivianne Rodrigues in New York and Lin Noueihed in London; Editing by Leslie Adler)