FOREX-Dollar gains vs yen after strong US jobs report, outlook still murky

* Dollar extends gains vs yen after strong U.S. jobs report

* Euro posts modest bounce vs dollar, still seen capped long term (Adds details and quotes, updates prices)

By Shinichi Saoshiro

TOKYO, June 4 (Reuters) – The dollar gained against the yen on Monday after the release of an upbeat U.S. jobs report, although uncertainty over potential political risks kept the currency’s near-term outlook murky.

The dollar added 0.15 percent to 109.660 yen following a rise of 0.6 percent on Friday.

Closely watched data out on Friday showed U.S. jobs growth gathering pace and wages rising in May, making a rate hike by the Federal Reserve in June a near certainty and increasing expectations of a fourth hike this year. robust U.S. jobs report helped offset factors that had weighed on the dollar earlier last week, such as a flare up in trade tensions between the United States and its allies.

“The jobs report was strong but other recent U.S. data also point to strong fundamentals, helping the dollar recover losses suffered from risk aversion. Uncertainty over the U.S.-North Korea summit next week is still likely to cap the dollar’s upside,” said Shin Kadota, senior strategist at Barclays (LON:) in Tokyo.

The greenback dipped against a basket of six major currencies, weighed by the euro’s bounce against the greenback. The slipping 0.15 percent to 94.029 after gaining about 0.2 percent on Friday.

The euro rose 0.2 percent to $1.1685 , recovering the bulk of Friday’s losses.

The prospect of a snap election in Italy shook investor risk sentiment at the start of last week as some feared the vote could be a referendum on the country’s euro membership.

But the euro has drifted up since as markets gained some composure after anti-establishment parties reached a deal to resurrect their proposed coalition government, averting potentially destabilising elections.

“While worries over Italy may have subsided somewhat, the bottom line is that the U.S. economy is doing better than its European peers, and this will continue to weigh on the euro,” Kadota at Barclays said.

The single currency remained in sight of a 10-month low of $1.1510 set earlier last week when concerns over Italian politics peaked in the global markets.

“Focus will likely shift back from Italy to European Central Bank policy,” said Mitsuo Imaizumi, chief forex strategist at Daiwa Securities in Tokyo.

“The prospect of the ECB immediately following the Fed in normalising monetary policy has waned. The euro will be sensitive to any comments by ECB officials which suggest the central bank is less enthusiastic about normalising policy.”

The Australian dollar rose on an improvement in broader risk sentiment and upbeat domestic data showing strong company profits and a rise in retail sales. The was 0.4 percent higher at $0.7599 AUD=D4 . New Zealand dollar gained 0.2 percent to $0.7004.

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