The euro hit a two-month high against the dollar on Thursday amid a broad increase in risk appetite after strong Australian data and a larger-than-expected drop in U.S. weekly initial jobless claims.

A jump in Australian employment in June drove the Australian dollar up more than 1 percent on the day against the dollar and nearly 2 percent higher against the yen.

The Australian dollar and other so-called commodity currencies, such as the Canadian dollar, are often seen as a gauge for investors' demand for riskier assets.

Meanwhile in the United States, new claims for unemployment insurance fell more than expected last week, while several top U.S. retail chains reported stronger June same-store sales also supporting demand for stocks and other higher-risk assets.

The euro continued to be supported by the overall elevated level of risk appetite, said Omer Esiner, a chief market analyst at Commonwealth Foreign Exchange in Washington, D.C. That got a little bit of a boost from this morning's positive initial jobless claims data.

Global stocks are in broadly positive territory and commodities are pushing higher, so you would expect the euro to run up further against the U.S. dollar in that environment, he added.

The euro EUR= climbed to as high as $1.2694, its highest since mid-May, according to Reuters data. It was last up 0.4 percent at $1.2687.

The European Central Bank earlier kept interest rates at a record low 1.0 percent at its monthly meeting.

ECB President Jean-Claude Trichet said at a press conference the economic recovery in the euro area continued in the first half of 2010 and that looking ahead, he expects the euro area economy to grow at a moderate and still uneven pace in an environment of high uncertainty.

Trichet offered few details on whether upcoming stress tests will effectively gauge the health of European banks. The president reiterated his calls for full transparency of the results and said complete disclosure would boost confidence among investors. Details on the test will be disclosed later this month.

The Australian dollar was 2.6 percent higher versus the yen at 76.75 yen AUDJPY=R, on the back of data showing Australia created 45,900 jobs in June, much higher than forecasts for 17,500. It rose around 1.6 percent on the day against the dollar to $0.8782 AUD=D4.

The yen was one of the day's biggest losers as gains in European and U.S. stocks prompted investors to shed long positions in the low-yielding currency.

The dollar rose 0.9 percent to 88.46 yen JPY=, while the euro rose 1.3 percent against the Japanese currency to 112.32 EURJPY=.

Sterling GBP=D4 slipped 0.2 percent to $1.5152, pulling away from a two-month high of $1.5241 after an early rally triggered an unwinding of some long positions.

It barely moved after the Bank of England kept interest rates unchanged at a record low 0.5 percent, as widely expected. (Reporting by Vivianne Rodrigues; Editing by Theodore d'Afflisio)