Dollar recovers slightly ahead of payrolls, earnings support stocks

By Vikram Subhedar

LONDON (Reuters) - The dollar recovered from 12-week lows but was poised for a fourth straight weekly loss in cautious trading on Friday ahead of U.S. payrolls data while a set of healthy corporate results underpinned gains across European equity markets.

Earlier in the day, an unexpected tightening of policy by China's central bank put Asian markets, already on the back foot on growing concerns about U.S. President Donald Trump's aggressive policies, under further pressure.

While a set of well-received corporate results helped prevent the weakness from spilling over into European stocks, the focus now shifts to the U.S. labor market report, which comes ahead of next week's U.S. Federal Reserve rate decision.

The dollar rose to its session high against a basket of six major currencies, with the dollar index up 0.17 percent to 99.962.

According to a Reuters survey of economists, nonfarm payrolls probably increased by 175,000 jobs last month, picking up from the 156,000 jobs added in December. The unemployment rate is expected to be unchanged at 4.7 percent in January, near a nine-year low.

"The next hurdle for the USD to overcome is the Fed," said analysts at Morgan Stanley (NYSE:MS), led by strategist Hans Redekker, in a note to clients, adding, however, that conditions for a resumption of the dollar to resume its rally have improved.

Reiterations of continued monetary policy in Europe, the Bank of Japan's commitment to control the JGB yield curve and weaker yuan fixings by the People's Bank of China, are "three pluses" for the US dollar, Morgan Stanley said.

Also, in FX markets sterling steadied after its worst fall since October while the euro was set for its sixth week of gains in seven, at $1.0745 and having gone as high as $1.0829 after the latest signs growth and inflation is rising in the euro zone.

A healthier outlook for the euro zone economy and for its banks has lifted analyst sentiment on regional corporate results to its brightest in 6 years.

Meanwhile, in commodities oil prices edged up on threat of U.S. issuing new Iran sanctions while comments by Russian energy minister Alexander Novak that oil producers had cut their output in accordance with a pact agreed in December also helped support prices.

Brent crude futures were up 17 cents, or 0.3 percent, to $56.72 a barrel. Brent is set to gain more than 2 percent for the week.

Front month U.S. West Texas Intermediate crude futures climbed 15 cents, or 0.3 percent, to $53.69 a barrel.

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London copper fell, however, after China's policy tightening spooked metals markets.