U.S. Feb payrolls fall 36,000, less than expected
* BOJ may debate easing again this month-sources
* Aussie, kiwi rise sharply vs yen (Updates prices, adds comment, changes byline)

By Steven C. Johnson

NEW YORK, March 5 (Reuters) - The dollar soared against the yen on Friday after a government report showed U.S. employers cut fewer jobs than expected last month, boosting hopes a U.S. economic recovery was on track.

The renewed optimism also encouraged investors to buy stocks and high-yield currencies such as the Australian and New Zealand dollars, while the euro rose as concern about Greece's debt crisis ebbed after Thursday's successful debt auction.

The U.S. Labor Department said the economy lost 36,000 jobs in February, leaving the unemployment rate steady at 9.7 percent. Analysts polled by Reuters expected 50,000 job cuts and a 9.8 percent jobless rate. For more, see [ID:nN04252324]

The fact that the U.S. labor market is in better shape than we were thinking supports the U.S. recovery story and it encourages market participants to put on risky trades, said BNY Mellon currency strategist Michael Woolfolk.

The dollar rose as high as 90.58 yen, the strongest level in more than a week, according to Reuters data. It was last at 90.39 yen, up 1.5 percent and on track for its biggest daily gain since December.

The euro rose 1.7 percent to 123.05 yen EURJPY= and the New Zealand dollar added 3 percent to 62.98 yen NZDJPY=R, at current prices its best one-day performance since May.

Low interest rates mean the yen tends to fall when risk appetite rises and as investors borrow the yen to finance more lucrative trades in other currencies and assets.

Adding to pressure on the currency was a report the Bank of Japan was likely to debate whether to ease its ultra-loose monetary policy again as it tries to pull Japan out of deflation. [ID:nTOE6230A7]

By contrast, U.S. short-term interest rate futures showed rising expectations of Federal Reserve interest rate hike this year. See [ID:nN05202417]

The U.S. economy looks like it's in pretty good shape, but on the other hand, Japan's economy is still struggling and now there's talk that more easing could be coming from the BoJ, so the yen is weakening, said Hidetoshi Yanagihara, senior currency trader at Mizuho Corporate Bank in New York.


Against the greenback, the euro rose as high as $1.3629, according to Reuters data, reversing earlier losses as risk appetite increased. It last traded at $1.3611, up 0.2 percent on the day.

The euro also got a respite as concerns about debt problems in Greece eased after a 10-year Greek bond sale on Thursday attracted strong demand. The spread between yields on Greek government bonds and benchmark German bunds narrowed.

However, German Chancellor Angela Merkel did not spell out any specific aid mechanisms for Greece during talks on Friday with her Greek counterpart. [ID:nDEK000020]

I think the Greek situation and sovereign debt in general is going to continue to pop its head up every now and then, said Ronald Simpson, director of currency research at Action Economics in Tampa, Florida. For now it appears it's subsided.

(Additional reporting by Wanfeng Zhou and Gertrude Chavez-Dreyfuss; Editing by Andrew Hay)