* Dollar near 3-1/2-year high vs yen, 3-month high vs euro
* U.S. job gains stoke speculation Fed may quit QE
* Yen to fall further on prospect of aggressive BOJ easing in April
* Euro to remain weak as concerns about euro zone persist
By Anooja Debnath
LONDON, March 11 (Reuters) - The dollar held near a 3-1/2-year high against the yen and was steady near other major currencies on Monday after better-than-expected growth in the U.S. jobs data last week added to optimism about the world's largest economy.
Encouraging U.S. employment data fuelled speculation the U.S. Federal Reserve could back off from its ultra-loose monetary policy sooner than anticipated and this is likely to keep the dollar buoyant for now.
The dollar was flat on the day at 82.739 against a basket major currencies, not far from the seven-month high of 82.924 hit on Friday. Having risen 4.8 percent since a low hit in early February, the index is seen as on course to test its July 2012 peak of 84.10.
"We remain constructive on the dollar. There are expectations that the Fed could consider reducing the size of its asset purchases in the second half of the year and this could help the dollar," said Valentin Marinov, head of European G10 FX strategy at Citi.
Data released on Friday showed speculators boosted their bets in favour of the U.S. dollar in the latest week to the highest in more than seven months.
"In the case of the Fed, there are growing market expectations that we will see its balance sheet expanding by less in 2013 than we were looking for at the start of the year. That is dollar-supportive although some risks remain linked to the path of the U.S. recovery from here," Marinov said.
Some strategists however said market reaction to the jobs data might have been overdone and the dollar could see some consolidation around these levels.
"It is hard to glean anything too conclusive from the (U.S. jobs) numbers, and Friday's (dollar) move looks like a slight overreaction," analysts at Lloyds said in a note.
"So while we would not be aggressive dollar sellers, we would look for a correction to dollar strength from here, and 83 on the dollar index is likely to prove difficult to break."
Strategists said while the Fed's next policy step could be to scale back its stimulus, the world's other major central banks could ease policy further.
The Bank of Japan is perceived to be seeking a "new dimension" of easing under new governor Haruhiko Kuroda, who is expected to be appointed this month.
Many in the market expect the BOJ to ease aggressively at Kuroda's first policy meeting on April 3-4 as he promised to move quickly to implement fresh monetary stimulus on Monday and this could lead to further yen weakness.
The dollar was up 0.1 percent to 96.08 yen, not far from Friday's high of 96.60 yen, which was its highest level since Aug. 12, 2009.
Against the firm dollar, the euro was down 0.1 percent at $1.2995, having hit a three-month low of $1.2955 on Friday. Traders said buyers could emerge on dips around $1.2950 which could act as near-term support and most would continue to sell of rallies around $1.3030.
While the European Central Bank is a bit more cautious about further easing, reinforcing speculation of looser policy, International Monetary Fund head Christine Lagarde said on Friday the ECB should lower rates.
"For the ECB, markets are speculating more aggressive easing which is in contrast with expectation to the what is happening in the Fed and that is inherently negative for euro/dollar," Marinov said.
Analysts said the euro was likely to trend lower against the dollar also because of the growing worries about peripheral countries and the political concerns in Italy.
Ratings agency Fitch added to Italy's mounting problems on Friday by cutting its credit rating due to the political uncertainty, deep recession and rising debt. (Additional reporting by Hideyuki Sano/editing by Chris Pizzey, London MPG Desk, +44 (0)207 542-4441)