Dollar rises on U.S. job data, play up to 7 months vs. yen

NEW YORK (Reuters) - The dollar rose broadly on Friday, hitting a new seven-month high against the yen after a government report showed the U.S. private sector created jobs at its sharpest rate in at least three years.

This report suggests that the U.S. labor market recovery is gradual, but steady, and should reinforce expectations that Federal Reserve will raise interest rates sooner than their counterparts in Europe and Japan.

"As the employment data reflect a continuing improvement in the U.S. labor market, it fits with our general view that the output gap in America is closing, albeit slowly," said Marc Chandler, director of global currency strategy at Brown Brothers Harriman in New York.

"That will allow the Fed raising rates before the Bank of Japan, the European Central Bank and the Bank of England. We hope this will prop up the dollar in a medium-term," he said.

The Labor Department reported that U.S. employers created 162,000 new jobs, below the 190,000 expected by the market, but 123,000 places were opened in the private sector, the most since May 2007.

In the short time in New York, the euro fell 0.7 percent against the dollar at 1.3481 units. Traders said hedge funds overall took to sell the euro after news of the data.

Despite the fall of the euro on Friday, the European currency showed a slight increase in the week, recovering modestly from the losses of the last two weeks.

Against the yen, the dollar rose to 94.69 points, its highest level since late August, according to Reuters data. Finally, the dollar closed at 94.65 yen, gaining 0.9 percent on the day.

The dollar rose 2.3 percent against the yen this week with its best weekly performance since early December.

On the day, the pound fell 0.7 percent to $ 1.5190.

The dollar index, a gauge of the performance of the greenback against a basket of six currencies benchmark rose 0.6 percent to 81.306.

Some analysts believe that due to positive non-farm payrolls report, the Fed might raise its discount rate again on Monday, when hold a meeting. The discount rate is the rate the Fed charges commercial banks for emergency loans.

"Since the central bank has already completed its asset purchase program, another hike in the discount rate would be the next logical step," said Kathy Lien, director of currency research at GFT in New York. "Increasing the discount rate would help the Fed to normalize monetary policy without affecting families," he said.