Dollar on defensive, U.S. jobs report awaited for possible relief

By Shinichi Saoshiro

TOKYO (Reuters) - The dollar was on the defensive against its peers on Friday after soft data dampened expectations the Federal Reserve would hike interest rates soon, looking to U.S. non-farm payrolls later in the session for possible relief.

The euro was flat at $1.0950 after surging 0.8 percent overnight. The overnight spike lifted the common currency away from a one-month trough of $1.0825 plumbed midweek.

The dollar was effectively unchanged at 113.71 yen after being nudged off the previous day's high of 114.28.

The Institute for Supply Management (ISM) said on Thursday its employment index fell to 49.7 in February from 52.1 a month earlier, the first contraction in service-sector employment since February 2014.

The market's attention, however, has quickly moved on to the non-farm payrolls report, which is expected to show U.S. employers added 190,000 jobs in February, according to economists polled by Reuters.

"Interest rate hike expectations dropped significantly last month, so a strong jobs report would help the dollar by adding to the case for a hike in June by the Fed," said Shin Kadota, chief Japan FX strategist at Barclays in Tokyo.

"But even a strong report won't do much to change perceptions that the Fed will not hike in March," he said.

Global growth concerns and patches of weak U.S. data have helped reduce near-term rate hike prospects this year, with financial markets not expecting the Fed to tighten at its March 15-16 policy meeting.

Elsewhere, the Australian dollar stood near a three-month peak of $0.7374 scaled overnight. A recent rebound in prices of commodities such as crude oil and iron ore and supportive domestic data have trimmed expectations of a future interest rate cut by the Reserve Bank of Australia.

The Canadian dollar, another commodity-linked currency buoyed by a surge in oil, hovered near a three-month high of C$1.3372 per dollar.

(Reporting by Shinichi Saoshiro; Editing by Eric Meijer)